EMCOR Group's (NYSE:EME) earnings growth rate lags the 49% CAGR delivered to shareholders

Buying shares in the best businesses can build meaningful wealth for you and your family. While the best companies are hard to find, but they can generate massive returns over long periods. Just think about the savvy investors who held EMCOR Group, Inc. (NYSE:EME) shares for the last five years, while they gained 615%. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 22% gain in the last three months. It really delights us to see such great share price performance for investors.

Since the long term performance has been good but there's been a recent pullback of 3.7%, let's check if the fundamentals match the share price.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over half a decade, EMCOR Group managed to grow its earnings per share at 32% a year. This EPS growth is slower than the share price growth of 48% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It is of course excellent to see how EMCOR Group has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling EMCOR Group stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for EMCOR Group the TSR over the last 5 years was 629%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that EMCOR Group has rewarded shareholders with a total shareholder return of 25% in the last twelve months. That's including the dividend. However, that falls short of the 49% TSR per annum it has made for shareholders, each year, over five years. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. 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 1 warning sign for EMCOR Group that you should be aware of before investing here.

But note: EMCOR Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.