Does Carpenter Technology’s (NYSE:CRS) Share Price Gain of 65% Match Its Business Performance?

Passive investing in index funds can generate returns that roughly correspond to the market as a whole. But you can do better by choosing stocks that are above average (as part of a diversified portfolio). Namely the Carpenter Technology Corporation (NYSE: CRS) the share price is 65% higher than a year ago and thus significantly better than the market return of around 38% (excluding dividends) in the same period. That’s a solid achievement by our standards! In contrast, the longer-term returns are negative as the stock price is 28% lower than it was three years ago.

Check out our latest analysis for Carpenter Technology

While markets are a powerful pricing mechanism, stock prices reflect investor sentiment, not just the underlying business performance. By comparing earnings per share (EPS) and how the share price has changed over time, we can get a sense of how investor attitudes towards a company have changed over time.

In the past twelve months, Carpenter Technology has gone from being profitable to being unprofitable. While some may view this as temporary, we are a skeptical bunch, and so we are a little surprised that the stock price is rising. We may receive a hint to explain stock price movement by looking at other metrics.

We doubt the modest 2.0% dividend yield does much to support the stock price. Carpenter Technology’s sales even fell by 37% compared to the previous year. So using a snapshot of key business metrics doesn’t give us a good picture of why the market is bidding high for the stock.

In the image below you can see how revenue and sales have changed over time (click on the graph to see the exact values).

NYSE: CRS earnings and revenue growth June 20, 2021

Take a closer look at Carpenter Technology’s financial health free Report on his balance sheet.

What about dividends?

In addition to measuring stock price return, investors should also consider total shareholder return (TSR). The TSR takes into account the value of spin-offs or discounted capital increases along with dividends, based on the assumption that the dividends will be reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Carpenter Technology, it has a TSR of 71% for the last year. That exceeds the already mentioned share price return. This is mainly due to its dividend payments!

Another perspective

It’s nice to see Carpenter Technology shareholders posted a total return of 71% over the past year. This of course also includes the dividend. That’s better than the 7% annualized return over half a decade, which suggests the company has been doing better lately. Someone with an optimistic outlook might see the recent improvement in TSR as an indication that business itself is getting better with time. I find it very interesting to look at the share price as a proxy for business development over the long term. But to really gain insight, we need to consider other information as well. Like risks, for example. Every company has them and we discovered them 2 warning signs for carpentry technology (1 of which makes us a little uncomfortable!) you should know.

Naturally Carpenter Technology may not be the best stock to buy. You might want to see this free Collection of growth stocks.

Please note that the market returns reported in this article reflect the market weighted average returns on stocks currently traded on US exchanges.

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This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamentals. Note that our analysis may not take into account the latest company announcements or quality material, which may be sensitive to the price. Simply Wall St has no position in the stocks mentioned.
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