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The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. For instance, the price of Eagle Materials Inc. (NYSE:EXP) stock is up an impressive 264% over the last five years. In more good news, the share price has risen 11% in thirty days. But the price may well have benefitted from a buoyant market, since stocks have gained 13% in the last thirty days.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Eagle Materials achieved compound earnings per share (EPS) growth of 78% per year. The EPS growth is more impressive than the yearly share price gain of 30% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Eagle Materials' key metrics by checking this interactive graph of Eagle Materials's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Eagle Materials the TSR over the last 5 years was 273%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Eagle Materials shareholders are down 6.0% for the year (even including dividends), but the market itself is up 13%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 30%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 1 warning sign for Eagle Materials you should be aware of.