When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. Long term Eaton Corporation plc (NYSE:ETN) shareholders would be well aware of this, since the stock is up 291% in five years. It’s also up 8.0% in about a month.
After a strong gain in the past week, it’s worth seeing if longer term returns have been driven by improving fundamentals.
View our latest analysis for Eaton
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Eaton managed to grow its earnings per share at 11% a year. This EPS growth is slower than the share price growth of 31% 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. That’s not necessarily surprising considering the five-year track record of earnings growth.
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. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Eaton’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of Eaton, it has a TSR of 333% 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.
It’s nice to see that Eaton shareholders have received a total shareholder return of 52% over the last year. That’s including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 34% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It’s always interesting to track share price performance over the longer term. But to understand Eaton better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we’ve spotted with Eaton .
Eaton is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.