Linamar (TSE:LNR) Share Prices Have Dropped 40% In The Last Three Years

As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Linamar Corporation (TSE:LNR) shareholders have had that experience, with the share price dropping 40% in three years, versus a market return of about 15%.

See our latest analysis for Linamar

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. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Linamar saw its EPS decline at a compound rate of 30% per year, over the last three years. This fall in the EPS is worse than the 16% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Linamar's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What about the Total Shareholder Return (TSR)?

We've already covered Linamar's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Dividends have been really beneficial for Linamar shareholders, and that cash payout explains why its total shareholder loss of 39%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

It's nice to see that Linamar shareholders have received a total shareholder return of 4.2% over the last year. And that does include the dividend. Notably the five-year annualised TSR loss of 6.0% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. 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. To that end, you should be aware of the 1 warning sign we've spotted with Linamar .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

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This article by Simply Wall St is general in nature. 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.
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