When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But Axalta Coating Systems Ltd. (NYSE:AXTA) has fallen short of that second goal, with a share price rise of 38% over five years, which is below the market return. Over the last twelve months the stock price has risen a very respectable 19%.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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 the last half decade, Axalta Coating Systems became profitable. That’s generally thought to be a genuine positive, so we would expect to see an increasing share price. Since the company was unprofitable five years ago, but not three years ago, it’s worth taking a look at the returns in the last three years, too. We can see that the Axalta Coating Systems share price is up 15% in the last three years. In the same period, EPS is up 36% per year. This EPS growth is higher than the 4.9% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.
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 Axalta Coating Systems has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
It’s good to see that Axalta Coating Systems has rewarded shareholders with a total shareholder return of 19% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 6.6% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. If you would like to research Axalta Coating Systems in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course Axalta Coating Systems may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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