By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, The Goodyear Tire & Rubber Company (NASDAQ:GT) shareholders have seen the share price rise 40% over three years, well in excess of the market return (15%, not including dividends).
After a strong gain in the past week, it’s worth seeing if longer term returns have been driven by improving fundamentals.
View our latest analysis for Goodyear Tire & Rubber
Goodyear Tire & Rubber wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
Goodyear Tire & Rubber’s revenue trended up 19% each year over three years. That’s a very respectable growth rate. The share price gain of 12% per year shows that the market is paying attention to this growth. Of course, valuation is quite sensitive to the rate of growth. Keep in mind that the strength of the balance sheet impacts the options open to the company.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
We’re pleased to report that Goodyear Tire & Rubber shareholders have received a total shareholder return of 39% over one year. That certainly beats the loss of about 4% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. 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. Case in point: We’ve spotted 1 warning sign for Goodyear Tire & Rubber you should be aware of.
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.
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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.