Ferrari (NYSE:RACE) sheds 7.0% this week, as yearly returns fall more in line with earnings growth

By
Simply Wall St
Published
January 19, 2022
NYSE:RACE
Source: Shutterstock

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on a lighter note, a good company can see its share price rise well over 100%. Long term Ferrari N.V. (NYSE:RACE) shareholders would be well aware of this, since the stock is up 278% in five years. On the other hand, the stock price has retraced 7.0% in the last week. But note that the broader market is down 3.5% since last week, and this may have impacted Ferrari's share price.

Although Ferrari has shed €3.3b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for Ferrari

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

Over half a decade, Ferrari managed to grow its earnings per share at 21% a year. This EPS growth is lower than the 30% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
NYSE:RACE Earnings Per Share Growth January 19th 2022

We know that Ferrari has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Ferrari the TSR over the last 5 years was 291%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Ferrari shareholders have received a total shareholder return of 13% over one year. And that does include the dividend. Having said that, the five-year TSR of 31% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Ferrari better, we need to consider many other factors. For instance, we've identified 1 warning sign for Ferrari 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 US exchanges.

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