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Aecon Group Inc. (TSE:ARE) shareholders might be concerned after seeing the share price drop 21% in the last quarter. On the bright side the share price is up over the last half decade. However we are not very impressed because the share price is only up 41%, less than the market return of 104%.
In light of the stock dropping 5.0% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.
Check out our latest analysis for Aecon Group
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Aecon Group's earnings per share are down 3.5% per year, despite strong share price performance over five years. This was, in part, due to extraordinary items impacting earning in the last twelve months.
So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.
On the other hand, Aecon Group's revenue is growing nicely, at a compound rate of 6.2% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Aecon Group in this interactive graph of future profit estimates.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Aecon Group the TSR over the last 5 years was 80%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.