We believe investing is smart because history shows that stock markets go higher in the long term. But if when you choose to buy stocks, some of them will be below average performers. For example, the BorgWarner Inc. (NYSE:BWA), share price is up over the last year, but its gain of 11% trails the market return. However, the stock hasn’t done so well in the longer term, with the stock only up 8.3% in three years.
Since it’s been a strong week for BorgWarner shareholders, let’s have a look at trend of the longer term fundamentals.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the last year, BorgWarner actually saw its earnings per share drop 52%.
So we don’t think that investors are paying too much attention to EPS. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
We are skeptical of the suggestion that the 1.2% dividend yield would entice buyers to the stock. Revenue was pretty flat year on year, but maybe a closer look at the data can explain the market optimism.
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 a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling BorgWarner stock, you should check out this free report showing analyst consensus estimates for future profits.
BorgWarner provided a TSR of 13% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 4% per year over five year. It is possible that returns will improve along with the business fundamentals. 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 3 warning signs for BorgWarner that you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).
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.