Given that the business performed well and the company remained committed to continuously rewarding shareholders, it follows that the performance results over this time are likely quite good. And this is precisely what we see. Over the past 15 years, Sherwin-Williams has returned almost 18% a year, against the 2.6% annual returns of the S&P 500 index over the same time period. A hypothetical $10,000 investment in Sherwin-Williams on Dec. 31, 1999, would now be worth $100,000 today -- 10 times the initial investment.
It is clear that this has been relatively exceptional performance. Yet what is not yet readily apparent is that a portion of these results are directly a result of price-to-earnings expansion. More specifically, Sherwin-Williams traded at about 11.6 times earnings at the end of 1999 as compared to 25 times earnings today. This also can be observed in the capital appreciation component of the return. While the business generated operating results of 11.5% a year, the stock price grew by 17.2% a year.
If we add price (the black line) to the FAST Graphs -- thus making it an earnings and price correlated graph -- we can see this relationship develop over time. For a long time Sherwin-Williams traded slightly below 15 times earnings (the orange line). Indeed, the "normal" P/E ratio for the last 15 years has been about 15.5. However, in the past 2 years the market has commanded a much higher valuation, rocketing shares past their normal valuation range.