Estée Lauder Companies (NYSE: EL) shareholders have earned a 22% CAGR over the last five years

The Estée Lauder Companies Inc. (NYSE: EL) shareholders might be concerned after seeing the share price drop 20% in the last quarter. But that doesn’t change the fact that shareholders have received really good returns over the last five years. We think most investors would be happy with the 160% return, over that period. We think it’s more important to dwell on the long term returns than the short term returns. Of course, that doesn’t necessarily mean it’s cheap now.

So let’s assess the underlying fundamentals over the last 5 years and see if they’ve moved in lock-step with shareholder returns.

Check out our latest analysis for Estée Lauder Companies

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 way to examine how market sentiment has changed over time is to look at the interaction between a company share price and its earnings per share (EPS).

Over half a decade, Estée Lauder Companies managed to grow its earnings per share at 25% a year. The EPS growth is more impressive than the yearly share price gain of 21% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth

We know that Estée Lauder Companies 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Estée Lauder Companies, it has a TSR of 173% 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 regret to report that Estée Lauder Companies shareholders are down 18% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 9.0%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. On the bright side, long term shareholders have made money, with a gain of 22% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It’s always interesting to track share price performance over the longer term. But to understand Estée Lauder Companies better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 3 warning signs for Estée Lauder Companies (of which 1 is a bit 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.

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

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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