Buying shares in the best businesses can build meaningful wealth for you and your family. And we've seen some truly amazing gains over the years. Don't believe it? Then look at the Steel Dynamics, Inc. (NASDAQ:STLD) share price. It's 414% higher than it was five years ago. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 11% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 15% in 90 days).
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
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...' 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, Steel Dynamics achieved compound earnings per share (EPS) growth of 21% per year. This EPS growth is lower than the 39% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.
This free interactive report on Steel Dynamics' earnings, revenue and cash flow is a great place to start if you want to investigate the stock further.
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Steel Dynamics' TSR for the last 5 years was 461%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
Steel Dynamics shareholders are up 11% for the year (even including dividends). But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 41% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand Steel Dynamics better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Steel Dynamics.