Investing in West Fraser Timber (TSE:WFG) five years ago would have delivered you a 328% gain

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22-03-2025

It hasn't been the best quarter for West Fraser Timber Co. Ltd. (TSE:WFG) shareholders, since the share price has fallen 11% in that time. But that scarcely detracts from the really solid long term returns generated by the company over five years. We think most investors would be happy with the 300% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. The more important question is whether the stock is too cheap or too expensive today.
Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
We know that West Fraser Timber has been profitable in the past. On the other hand, it reported a trailing twelve months loss, suggesting it isn't reliably profitable. So it might be better to look at other metrics to try to understand the share price.
We doubt the modest 1.7% dividend yield is attracting many buyers to the stock. On the other hand, West Fraser Timber's revenue is growing nicely, at a compound rate of 6.8% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So we recommend checking out this free report showing consensus forecasts
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, West Fraser Timber's TSR for the last 5 years was 328%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
While the broader market gained around 14% in the last year, West Fraser Timber shareholders lost 6.4% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 34%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of West Fraser Timber by clicking this link.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Canadian 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.