When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the EssilorLuxottica Société anonyme (EPA:EL) share price is up 30% in the last five years, that's less than the market return. However, more recent buyers should be happy with the increase of 27% over the last year.
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. 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, EssilorLuxottica Société anonyme actually saw its EPS drop 44% per year.
Essentially, it doesn't seem likely that investors are focused on EPS. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.
The modest 1.4% dividend yield is unlikely to be propping up the share price. On the other hand, EssilorLuxottica Société anonyme's revenue is growing nicely, at a compound rate of 21% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on EssilorLuxottica Société anonyme
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for EssilorLuxottica Société anonyme the TSR over the last 5 years was 38%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
EssilorLuxottica Société anonyme shareholders gained a total return of 29% during the year. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 7% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand EssilorLuxottica Société anonyme better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with EssilorLuxottica Société anonyme , and understanding them should be part of your investment process.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on FR 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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