For many investors, the main point in stock selection is to generate returns that are higher than the overall market. However, it is almost certain that you will sometimes buy stocks that are below the market average return. Unfortunately, this is also true for long-term Ford Motor Co. ( NYSE:F ) shareholders, with the stock price down 24% over the past three years, well below the market return of around 26%. Shareholders’ management has become even more difficult recently, and the stock price has fallen 14% in the past 90 days.
So let’s take a look at whether the company’s long-term performance is in line with the progress of its underlying business.
Check out our latest analysis for Ford Motor Company.
To paraphrase Benjamin Graham, in the short term the market is a voting machine, but in the long term it is a weighing machine. 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.
During three years of an unfortunate share price decline, Ford Motor actually grew its earnings per share (EPS) by 4.0% per year. This is very puzzling and suggests that there may be something temporarily driving up the stock price. Alternatively, growth expectations may have been unreasonable in the past.
It seems to us that the market three years ago was perhaps too optimistic about growth. However, it can be beneficial to look at other metrics.
Note that the dividend appears to be healthy enough, so that may not explain the share price drop. We like that Ford Motor Co. has actually grown its earnings over the past three years. If the company can continue to grow its earnings, it could present an opportunity for investors. You may need to dig deeper to understand the recent share price weakness.
You can see below how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Profit and revenue growth
We like to see that insiders have made significant purchases in the last year. Even so, future profits will be far more important than whether current shareholders make money. If you’re thinking of buying or selling Ford Motor Co. stock, check out this free report showing analyst profit forecasts.
What will happen to the dividend?
As well as measuring share price return, investors should also consider 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 increases and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return delivered by a stock. Coincidentally, Ford Motor’s TSR over the past three years was -7.8%, which is higher than the share price return mentioned above. Therefore, the dividends paid by the company boosted the total return for shareholders.
the story continues
different perspective
While the broader market is up about 35% last year, Ford Motor Company shareholders are down 6.9% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long-term shareholders have made money, with a return of 9% per year over 50 years. If fundamental data continues to point to long-term sustainable growth, the current selloff could be an opportunity worth considering. It’s always interesting to track stock performance over the long term. However, to understand Ford Motor Company better, you need to consider many other factors. For example, we’ve discovered 3 warning signs for Ford Motor Co. (1 is important!) you should know about before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them fly unnoticed by radar).
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 using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
