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We think all investors should try to buy and hold high quality multi-year winners. While not every stock performs well, when investors win, they can win big. Just think about the savvy investors who held Eli Lilly and Company (NYSE:LLY) shares for the last five years, while they gained 323%. This just goes to show the value creation that some businesses can achieve. On top of that, the share price is up 14% in about a quarter. But this could be related to the strong market, which is up 5.5% in the last three months.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
View our latest analysis for Eli Lilly
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
During five years of share price growth, Eli Lilly achieved compound earnings per share (EPS) growth of 25% per year. This EPS growth is lower than the 33% average annual increase in the share price. 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. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 57.62.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Eli Lilly'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. As it happens, Eli Lilly's TSR for the last 5 years was 365%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We're pleased to report that Eli Lilly shareholders have received a total shareholder return of 34% over one year. Of course, that includes the dividend. Having said that, the five-year TSR of 36% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand Eli Lilly better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Eli Lilly you should be aware of.