The main point of investing for the long term is to make money. Furthermore, you’d generally like to see the share price rise faster than the market Unfortunately for shareholders, while the ABB Ltd (VTX:ABBN) share price is up 31% in the last five years, that’s less than the market return. But if you include dividends then the return is market-beating. Some buyers are laughing, though, with an increase of 22% in the last year.
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
During five years of share price growth, ABB actually saw its EPS drop 17% per year.
This means it’s unlikely the market is judging the company based on earnings growth. Because earnings per share don’t seem to match up with the share price, we’ll take a look at other metrics instead.
It is not great to see that revenue has dropped by 10% per year over five years. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling ABB stock, you should check out this free report showing analyst profit forecasts.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, ABB’s TSR for the last 5 years was 57%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
ABB’s TSR for the year was broadly in line with the market average, at 27%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 9.5% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we’ve discovered 2 warning signs for ABB that you should be aware of before investing here.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CH exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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