A diverse portfolio of stocks will always have winners and losers. Of course, in an ideal world, all your stocks would beat the market. Continental Aktiengesellschaft (ETR:CON) has done well over the last year, with the stock price up 25% beating the market return of 23% (not including dividends). Having said that, the longer term returns aren’t so impressive, with stock gaining just 12% in three years.
So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 last year, Continental actually saw its earnings per share drop 2.2%.
The mild decline in EPS may be a result of the fact that the company is more focused on other aspects of the business, right now. It makes sense to check some of the other fundamental data for an explanation of the share price rise.
However the year on year revenue growth of 29% would help. We do see some companies suppress earnings in order to accelerate revenue growth.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Continental is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Continental the TSR over the last 1 year was 30%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
Continental’s TSR for the year was broadly in line with the market average, at 30%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 0.5% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. 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. Take risks, for example – Continental has 2 warning signs we think 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 German 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.