Abbott Laboratories' (NYSE:ABT) investors will be pleased with their solid 102% return over the last five years
When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. To wit, the Abbott Laboratories share price has climbed 86% in five years, easily topping the market return of 31% (ignoring dividends).
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Abbott Laboratories
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).
Over half a decade, Abbott Laboratories managed to grow its earnings per share at 31% a year. The EPS growth is more impressive than the yearly share price gain of 13% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Abbott Laboratories has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Abbott Laboratories' balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Abbott Laboratories' TSR for the last 5 years was 102%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Abbott Laboratories shareholders are down 21% over twelve months (even including dividends), which isn't far from the market return of -22%. Longer term investors wouldn't be so upset, since they would have made 15%, each year, over five years. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. It's always interesting to track share price performance over the longer term. But to understand Abbott Laboratories better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Abbott Laboratories , and understanding them should be part of your investment process.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
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