If you buy and hold a stock for many years, you'd hope to be making a profit. Better yet, you'd like to see the share price move up more than the market average. But Ecolab Inc. (NYSE:ECL) has fallen short of that second goal, with a share price rise of 25% over five years, which is below the market return. On a brighter note, more newer shareholders are probably rather content with the 21% share price gain over twelve months.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for Ecolab
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Over half a decade, Ecolab managed to grow its earnings per share at 7.8% a year. The EPS growth is more impressive than the yearly share price gain of 5% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
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. Dive deeper into the earnings by checking this interactive graph of Ecolab'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. 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. In the case of Ecolab, it has a TSR of 32% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Ecolab provided a TSR of 22% over the last twelve months. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 6% per year over five year. This suggests the company might be improving over time. 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. Take risks, for example - Ecolab has 1 warning sign we think you should be aware of.