Advertisement
U.S. markets close in 6 hours 26 minutes
  • S&P 500

    5,247.29
    -1.20 (-0.02%)
     
  • Dow 30

    39,826.94
    +66.86 (+0.17%)
     
  • Nasdaq

    16,361.36
    -38.16 (-0.23%)
     
  • Russell 2000

    2,114.35
    +44.19 (+2.13%)
     
  • Crude Oil

    82.43
    +1.08 (+1.33%)
     
  • Gold

    2,232.20
    +19.50 (+0.88%)
     
  • Silver

    24.76
    +0.01 (+0.05%)
     
  • EUR/USD

    1.0812
    -0.0018 (-0.16%)
     
  • 10-Yr Bond

    4.2140
    +0.0180 (+0.43%)
     
  • GBP/USD

    1.2638
    +0.0000 (+0.00%)
     
  • USD/JPY

    151.3150
    +0.0690 (+0.05%)
     
  • Bitcoin USD

    70,790.18
    -672.45 (-0.94%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,956.06
    +24.08 (+0.30%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Illinois Tool Works' (NYSE:ITW) investors will be pleased with their solid 123% return over the last five years

The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. But Illinois Tool Works Inc. (NYSE:ITW) has fallen short of that second goal, with a share price rise of 98% over five years, which is below the market return. Looking at the last year alone, the stock is up 11%.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

View our latest analysis for Illinois Tool Works

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Illinois Tool Works achieved compound earnings per share (EPS) growth of 9.4% per year. This EPS growth is lower than the 15% 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 company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
earnings-per-share-growth

We know that Illinois Tool Works has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Illinois Tool Works' TSR for the last 5 years was 123%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Illinois Tool Works provided a TSR of 14% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 17% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. Even so, be aware that Illinois Tool Works is showing 1 warning sign in our investment analysis , you should know about...

But note: Illinois Tool Works may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Advertisement