If you buy and hold a stock for many years, you'd hope to be making a profit. But more than that, you probably want to see it rise more than the market average. But Taiwan Semiconductor Co., Ltd. (GTSM:5425) has fallen short of that second goal, with a share price rise of 58% over five years, which is below the market return. Looking at the last year alone, the stock is up 16%.
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. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Taiwan Semiconductor actually saw its EPS drop 5.0% 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.
On the other hand, Taiwan Semiconductor's revenue is growing nicely, at a compound rate of 6.2% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
This free interactive report on Taiwan Semiconductor's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Taiwan Semiconductor, it has a TSR of 105% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Taiwan Semiconductor provided a TSR of 20% over the last twelve months. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 15% 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 Taiwan Semiconductor better, we need to consider many other factors. For example, we've discovered 2 warning signs for Taiwan Semiconductor that you should be aware of before investing here.
We will like Taiwan Semiconductor better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on TW exchanges.
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