When you buy and hold a stock for the long term, you absolutely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. Unfortunately for the shareholders, while the Graphic packaging portfolio company The stock price (NYSE: GPK) has risen 48% over the past five years, less than the market performance. However, newer buyers should be happy with the 43% increase from last year.
Let’s take a look at the underlying fundamentals over the longer term and see if they’ve been consistent with shareholder returns.
While the markets are a powerful pricing mechanism, stock prices reflect investor sentiment, not just underlying business performance. An imperfect but straightforward way to consider how a company’s market perception has changed is to compare the evolution of earnings per share (EPS) with the movement of the share price.
Over the five years of share price growth, Graphic Packaging Holding achieved compound earnings per share (EPS) growth of 0.4% per year. This EPS growth is slower than the share price growth of 8% per year over the same period. This suggests that market participants hold society in the highest regard these days. This isn’t necessarily surprising given the track record of five-year earnings growth.
You can see how EPS has changed over time in the image below (click on the graph to see the exact values).
NYSE: GPK Growth in earnings per share September 4, 2021
We know that Graphic Packaging Holding has improved its results lately, but will it increase its revenues? Check whether analysts believe Graphic Packaging Holding increase income in the future.
What about dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. TSR is a yield calculation that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of any capital increase and discounted spin-off. Arguably, the TSR gives a more complete picture of the return generated by a stock. As it turns out, Graphic Packaging Holding’s TSR over the past 5 years was 64%, which exceeds the share price return mentioned earlier. And there’s no price guessing that dividend payments are a big reason for the discrepancy!
A different perspective
We are pleased to report that the shareholders of Graphic Packaging Holding received a total shareholder return of 46% over one year. This includes the dividend. This gain is better than the annual TSR over five years which is 10%. Therefore, it seems that sentiment around the company has been positive lately. Someone with an optimistic outlook might view the recent improvement in TSR as indicating that the business itself is improving over time. I find it very interesting to look at the long-term share price as an indicator of company performance. But to really get an overview, we have to take other information into account as well. Consider, for example, the ever-present specter of investment risk. We have identified 4 warning signs with Graphic Packaging Holding , and understanding them should be part of your investment process.
If you are like me then you not want to miss it free list of growing companies that insiders buy.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on US stock exchanges.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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