Earnings growth outpaced the decent 8.8% CAGR delivered to Visteon (NASDAQ:VC) shareholders over the last five years

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But Visteon Corporation (NASDAQ:VC) has fallen short of that second goal, with a share price rise of 52% over five years, which is below the market return. The last year has been disappointing, with the stock price down 2.5% in that time.

Since the stock has added US$276m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Over half a decade, Visteon managed to grow its earnings per share at 69% a year. This EPS growth is higher than the 9% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 9.49.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It is of course excellent to see how Visteon has grown profits over the years, but the future is more important for shareholders. This free interactive report on Visteon's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

While the broader market gained around 15% in the last year, Visteon shareholders lost 2.5%. 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. Longer term investors wouldn't be so upset, since they would have made 9%, each year, over five years. 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 Visteon better, we need to consider many other factors. For instance, we've identified 2 warning signs for Visteon (1 shouldn't be ignored) that you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.