When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. Long term adidas AG (ETR:ADS) shareholders would be well aware of this, since the stock is up 221% in five years.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
adidas' earnings per share are down 5.5% per year, despite strong share price performance over five years.
Essentially, it doesn't seem likely that investors are focused on EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
On the other hand, adidas' revenue is growing nicely, at a compound rate of 5.7% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
adidas is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling adidas stock, you should check out this free report showing analyst consensus estimates for future profits.
What about the Total Shareholder Return (TSR)?
We've already covered adidas' share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that adidas' TSR of 238% over the last 5 years is better than the share price return.
A Different Perspective
Investors in adidas had a tough year, with a total loss of 7.7%, against a market gain of about 7.6%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 28% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand adidas better, we need to consider many other factors. Even so, be aware that adidas is showing 2 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...
If you are like me, then you will 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 DE exchanges.
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