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Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the Russel Metals share price has climbed 87% in five years, easily topping the market return of 39% (ignoring dividends).
In light of the stock dropping 4.2% 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.
See our latest analysis for Russel Metals
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Over half a decade, Russel Metals managed to grow its earnings per share at 8.8% a year. This EPS growth is slower than the share price growth of 13% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Russel Metals the TSR over the last 5 years was 143%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Russel Metals shareholders are down 5.8% for the year (even including dividends), but the market itself is up 22%. 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. On the bright side, long term shareholders have made money, with a gain of 19% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before spending more time on Russel Metals it might be wise to click here to see if insiders have been buying or selling shares.