Federal Signal (NYSE:FSS) shareholders have earned a 26% CAGR over the last five years
When you buy a stock there is always a possibility that it could drop 100%. But when you pick a company that is really flourishing, you can make more than 100%. One great example is Federal Signal Corporation (NYSE:FSS) which saw its share price drive 201% higher over five years. We note the stock price is up 2.3% in the last seven days.
Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
See our latest analysis for Federal Signal
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, Federal Signal achieved compound earnings per share (EPS) growth of 14% per year. This EPS growth is slower than the share price growth of 25% 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. And that’s hardly shocking given the track record of growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Federal Signal has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Federal Signal will grow revenue in the future.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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 Federal Signal, it has a TSR of 214% for the last 5 years. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments largely explain the divergence!
It’s nice to see that Federal Signal shareholders have received a total shareholder return of 29% over the last year. That’s including the dividend. That’s better than the annualised return of 26% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. If you would like to research Federal Signal in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
