Stryker's (NYSE:SYK) investors will be pleased with their decent 73% return over the last five years

If you buy and hold a stock for many years, you'd hope to be making a profit. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the Stryker Corporation (NYSE:SYK) share price is up 64% in the last five years, that's less than the market return. Looking at the last year alone, the stock is up 13%.

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.

View our latest analysis for Stryker

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Stryker actually saw its EPS drop 1.3% per year.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

The modest 0.9% dividend yield is unlikely to be propping up the share price. On the other hand, Stryker's revenue is growing nicely, at a compound rate of 8.7% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth

Stryker is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Stryker stock, you should check out this free report showing analyst consensus estimates for future profits.

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 Stryker, it has a TSR of 73% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Stryker shareholders gained a total return of 14% during the year. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 12% over half a decade This suggests the company might be improving over 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. For instance, we've identified 2 warning signs for Stryker that you should be aware of.

We will like Stryker better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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

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