If You Had Bought Quest Diagnostics (NYSE:DGX) Stock Five Years Ago, You Could Pocket A 73% Gain Today
If you buy and hold a stock for many years, you'd hope to be making a profit. But more than that, you probably want to see it rise more than the market average. But Quest Diagnostics Incorporated (NYSE:DGX) has fallen short of that second goal, with a share price rise of 73% over five years, which is below the market return. On a brighter note, more newer shareholders are probably rather content with the 21% share price gain over twelve months.
See our latest analysis for Quest Diagnostics
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During five years of share price growth, Quest Diagnostics achieved compound earnings per share (EPS) growth of 21% per year. The EPS growth is more impressive than the yearly share price gain of 12% over the same period. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 9.84.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Quest Diagnostics has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Quest Diagnostics stock, you should check out this FREE detailed report on its balance sheet.
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 Quest Diagnostics, it has a TSR of 92% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Quest Diagnostics shareholders are up 23% for the year (even including dividends). But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 14% per year over five year. This suggests the company might be improving over time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 3 warning signs for Quest Diagnostics (1 doesn't sit too well with us!) that you should be aware of before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.
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