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For us, stock picking is in large part the hunt for the truly magnificent stocks. But when you hold the right stock for the right time period, the rewards can be truly huge. One bright shining star stock has been Wajax Corporation (TSE:WJX), which is 306% higher than three years ago. It's also good to see the share price up 23% over the last quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
See our latest analysis for Wajax
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Wajax was able to grow its EPS at 20% per year over three years, sending the share price higher. This EPS growth is lower than the 59% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Wajax has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Wajax the TSR over the last 3 years was 379%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Wajax has rewarded shareholders with a total shareholder return of 29% in the last twelve months. That's including the dividend. That's better than the annualised return of 6% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 1 warning sign for Wajax you should be aware of.