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Sandvik's (STO:SAND) 13% CAGR outpaced the company's earnings growth over the same three-year period

Simply Wall St · 07/04 13:16

One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Sandvik AB (publ) (STO:SAND), which is up 28%, over three years, soundly beating the market return of 18% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 7.2% in the last year, including dividends.

Since it's been a strong week for Sandvik shareholders, let's have a look at trend of the longer term fundamentals.

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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 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 three years of share price growth, Sandvik achieved compound earnings per share growth of 2.8% per year. This EPS growth is lower than the 9% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It's not unusual to see the market 're-rate' a stock, after a few years of growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
OM:SAND Earnings Per Share Growth July 4th 2025

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free interactive report on Sandvik's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Sandvik's TSR for the last 3 years was 46%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Sandvik has rewarded shareholders with a total shareholder return of 7.2% in the last twelve months. That's including the dividend. However, the TSR over five years, coming in at 9% per year, is even more impressive. 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. Case in point: We've spotted 1 warning sign for Sandvik you should be aware of.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap companies that insiders are buying.

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