Tempur Sealy International’s (NYSE:TPX) Five-Year Total Shareholder Returns Exceed Underlying Earnings Growth

Tempur Sealy International, Inc. (NYSE:TPX) shareholders saw the stock price drop 11% during the month. But at least the stock is up over the past five years. However, we are not very impressed as the stock price only rose 48%, less than the market return of 48%. While the long-term returns are impressive, we have some sympathy for those who bought more recently, given last year’s 44% decline.

Although Tempur Sealy International lost US$332 million of its market capitalization this week, let’s take a look at its longer-term fundamental trends and see if they have generated any returns.

In his test The Graham-and-Doddsville super-investors Warren Buffett has described how stock prices don’t always rationally reflect a company’s value. An imperfect but reasonable way to gauge changing sentiment around a company is to compare earnings per share (EPS) with the stock price.

In half a decade, Tempur Sealy International has managed to grow its earnings per share by 31% per year. The EPS growth is more impressive than the annual share price gain of 8% over the same period. One could therefore conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (rather low) P/E ratio of 7.48.

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

NYSE: TPX Earnings per Share Growth October 16, 2022

We know that Tempur Sealy International has improved its results over the past three years, but what does the future hold? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive chart.

What about dividends?

In addition to measuring share price performance, investors should also consider total shareholder return (TSR). TSR is a calculation of return that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of all discounted capital raisings and spinoffs. It can be said that the TSR gives a more complete picture of the return generated by a stock. It turns out that Tempur Sealy International’s TSR for the last 5 years was 51%, which exceeds the share price return mentioned earlier. This is largely the result of its dividend payments!

A different perspective

While the broader market lost around 25% in the twelve months, Tempur Sealy International shareholders fared even worse, losing 43% (even including dividends). That said, it is inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the positive side, long-term shareholders made money, gaining 9% per year over half a decade. If fundamentals continue to point to sustainable long-term growth, the current sell-off could be an opportunity to consider. While it’s worth considering the various impacts that market conditions can have on the stock price, there are other, even more important factors. For example, we have identified 2 warning signs for Tempur Sealy International (1 is a little worrying) of which you should be aware.

Sure Tempur Sealy International may not be the best stock to buy. So you might want to see this free collection of growth values.

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

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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