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%. Long term Gray Television, Inc. (NYSE:GTN) shareholders would be well aware of this, since the stock is up 103% in five years. It’s even up 6.6% in the last week.
Since the stock has added US$126m to its market cap in the past week alone, let’s see if underlying performance has been driving long-term returns.
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, Gray Television achieved compound earnings per share (EPS) growth of 34% per year. The EPS growth is more impressive than the yearly share price gain of 15% over the same period. So one could conclude that the broader market has become more cautious towards the stock. The reasonably low P/E ratio of 8.73 also suggests market apprehension.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Gray Television’s earnings, revenue and cash flow.
What About Dividends?
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Gray Television, it has a TSR of 106% 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.
A Different Perspective
We’re pleased to report that Gray Television shareholders have received a total shareholder return of 25% over one year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 16%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we’ve spotted 2 warning signs for Gray Television (of which 1 is concerning!) you should know about.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
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