Generally speaking long term investing is the way to go. But no-one is immune from buying too high. To wit, the Bayer Aktiengesellschaft (ETR:BAYN) share price managed to fall 63% over five long years. We certainly feel for shareholders who bought near the top. The falls have accelerated recently, with the share price down 31% in the last three months. Of course, this share price action may well have been influenced by the 26% decline in the broader market, throughout the period.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
Looking back five years, both Bayer’s share price and EPS declined; the latter at a rate of 9.4% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 18% per year, over the period. So it seems the market was too confident about the business, in the past.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Bayer has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Bayer will grow revenue in the future.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Bayer’s TSR for the last 5 years was -57%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While it’s never nice to take a loss, Bayer shareholders can take comfort that , including dividends, their trailing twelve month loss of 7.8% wasn’t as bad as the market loss of around 15%. Of far more concern is the 16% p.a. loss served to shareholders over the last five years. This sort of share price action isn’t particularly encouraging, but at least the losses are slowing. It’s always interesting to track share price performance over the longer term. But to understand Bayer better, we need to consider many other factors. Even so, be aware that Bayer is showing 5 warning signs in our investment analysis , you should know about…
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.