過去五年，諾斯羅普·格魯曼公司(紐約證券交易所代碼：NOC)投資者的總回報增長速度快於盈利增長速度

When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Northrop Grumman Corporation (NYSE:NOC) shareholders have enjoyed a 72% share price rise over the last half decade, well in excess of the market return of around 43% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 23% in the last year , including dividends .

In light of the stock dropping 4.3% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

See our latest analysis for Northrop Grumman

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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, Northrop Grumman managed to grow its earnings per share at 23% a year. The EPS growth is more impressive than the yearly share price gain of 12% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 11.97 also suggests market apprehension.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Northrop Grumman has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Northrop Grumman will grow revenue in the future.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Northrop Grumman, it has a TSR of 87% 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

It's nice to see that Northrop Grumman shareholders have received a total shareholder return of 23% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 13%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Northrop Grumman is showing 1 warning sign in our investment analysis , you should know about...

We will like Northrop Grumman better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.