Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. Unfortunately for shareholders, while the Lear Corporation (NYSE:LEA) share price is up 32% in the last three years, that falls short of the market return. Looking at more recent returns, the stock is up 13% in a year.
Since it’s been a strong week for Lear shareholders, let’s have a look at trend of the longer term fundamentals.
See our latest analysis for Lear
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the three years of share price growth, Lear actually saw its earnings per share (EPS) drop 12% per year.
So we doubt that the market is looking to EPS for its main judge of the company’s value. Given this situation, it makes sense to look at other metrics too.
It may well be that Lear revenue growth rate of 6.9% over three years has convinced shareholders to believe in a brighter future. If the company is being managed for the long term good, today’s shareholders might be right to hold on.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Lear is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts
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 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 Lear the TSR over the last 3 years was 38%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Lear provided a TSR of 16% over the year (including dividends). That’s fairly close to the broader market return. To take a positive view, the gain is pleasing, and it sure beats annualized TSR loss of 3%, which was endured over half a decade. We’re pretty skeptical of turnaround stories, but it’s good to see the recent share price recovery. It’s always interesting to track share price performance over the longer term. But to understand Lear better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we’ve spotted 2 warning signs for Lear you should know about.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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