Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the BorgWarner Inc. (NYSE:BWA) share price slid 19% over twelve months. That’s disappointing when you consider the market returned 17%. Longer term shareholders haven’t suffered as badly, since the stock is down a comparatively less painful 14% in three years. The falls have accelerated recently, with the share price down 17% in the last three months.
So let’s have a look and see if the longer term performance of the company has been in line with the underlying business’ progress.
View our latest analysis for BorgWarner
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 way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During the unfortunate twelve months during which the BorgWarner share price fell, it actually saw its earnings per share (EPS) improve by 65%. Of course, the situation might betray previous over-optimism about growth.
The divergence between the EPS and the share price is quite notable, during the year. So it’s easy to justify a look at some other metrics.
With a low yield of 1.3% we doubt that the dividend influences the share price much. BorgWarner’s revenue is actually up 32% over the last year. Since we can’t easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
BorgWarner is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of BorgWarner, it has a TSR of -6.6% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Investors in BorgWarner had a tough year, with a total loss of 6.6% (including dividends), against a market gain of about 17%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn’t be so upset, since they would have made 3%, 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we’ve identified 1 warning sign for BorgWarner that you should be aware of.
Of course BorgWarner may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.