When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. One great example is TransDigm Group Incorporated (NYSE:TDG) which saw its share price drive 289% higher over five years. And in the last week the share price has popped 6.1%. But this could be related to the buoyant market which is up about 5.4% in a week.

Since the stock has added US$4.2b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During five years of share price growth, TransDigm Group achieved compound earnings per share (EPS) growth of 22% per year. This EPS growth is slower than the share price growth of 31% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

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

It is of course excellent to see how TransDigm Group has grown profits over the years, but the future is more important for shareholders. This free interactive report on TransDigm Group's balance sheet strength 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. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of TransDigm Group, it has a TSR of 338% 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

We're pleased to report that TransDigm Group shareholders have received a total shareholder return of 14% over one year. That's including the dividend. Having said that, the five-year TSR of 34% a year, is even better. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. It's always interesting to track share price performance over the longer term. But to understand TransDigm Group better, we need to consider many other factors. Take risks, for example - TransDigm Group has 3 warning signs (and 2 which can't be ignored) we think you should know about.

We will like TransDigm Group better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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 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.