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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. For example, the United Rentals, Inc. (NYSE:URI) share price is up a whopping 314% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. It's also up 14% in about a month. But this could be related to good market conditions -- stocks in its market are up 7.2% in the last month.
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.
Check out our latest analysis for United Rentals
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.
During five years of share price growth, United Rentals achieved compound earnings per share (EPS) growth of 12% 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. That's not necessarily surprising considering the five-year track record of earnings growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how United Rentals has grown profits over the years, but the future is more important for shareholders. This free interactive report on United Rentals' balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for United Rentals the TSR over the last 5 years was 320%, 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 United Rentals has rewarded shareholders with a total shareholder return of 33% in the last twelve months. That's including the dividend. Having said that, the five-year TSR of 33% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand United Rentals better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for United Rentals you should be aware of.