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%. For instance, the price of Cleveland-Cliffs Inc. (NYSE:CLF) stock is up an impressive 203% over the last five years. Also pleasing for shareholders was the 39% gain in the last three months.
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, Cleveland-Cliffs actually saw its EPS drop 2.3% per year. The impact of extraordinary items on earnings, in the last year, partially explain the diversion.
By glancing at these numbers, we’d posit that the decline in earnings per share is not representative of how the business has changed over the years. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
We are not particularly impressed by the annual compound revenue growth of 0.6% over five years. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
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. So we recommend checking out this free report showing consensus forecasts
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Cleveland-Cliffs’ total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Cleveland-Cliffs’ TSR of 220% over the last 5 years is better than the share price return.
A Different Perspective
Cleveland-Cliffs provided a TSR of 21% over the year. That’s fairly close to the broader market return. We should note here that the five-year TSR is more impressive, at 26% per year. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Cleveland-Cliffs a stock worth watching. It’s always interesting to track share price performance over the longer term. But to understand Cleveland-Cliffs better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 3 warning signs for Cleveland-Cliffs (of which 1 is a bit concerning!) you should know about.
Cleveland-Cliffs is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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. 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.