ArcelorMittal's (AMS:MT) underlying earnings growth outpaced the decent return generated for shareholders over the past three years

Published
July 02, 2022
ENXTAM:MT
Source: Shutterstock

ArcelorMittal S.A. (AMS:MT) shareholders might be concerned after seeing the share price drop 27% in the last quarter. But that shouldn't obscure the pleasing returns achieved by shareholders over the last three years. In fact, the company's share price bested the return of its market index in that time, posting a gain of 42%.

While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

Check out our latest analysis for ArcelorMittal

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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).

ArcelorMittal was able to grow its EPS at 66% per year over three years, sending the share price higher. This EPS growth is higher than the 12% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 1.13.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
ENXTAM:MT Earnings Per Share Growth July 2nd 2022

We know that ArcelorMittal has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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. In the case of ArcelorMittal, it has a TSR of 45% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

The total return of 17% received by ArcelorMittal shareholders over the last year isn't far from the market return of -19%. Longer term investors wouldn't be so upset, since they would have made 2%, each year, over five years. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. 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. Take risks, for example - ArcelorMittal has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Of course ArcelorMittal may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

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