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If you buy and hold a stock for many years, you'd hope to be making a profit. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the Arrow Electronics, Inc. (NYSE:ARW) share price is up 70% in the last five years, that's less than the market return. Zooming in, the stock is up a respectable 19% in the last year.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Over half a decade, Arrow Electronics managed to grow its earnings per share at 23% a year. This EPS growth is higher than the 11% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.65.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Arrow Electronics has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
A Different Perspective
It's good to see that Arrow Electronics has rewarded shareholders with a total shareholder return of 19% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 11% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Arrow Electronics , and understanding them should be part of your investment process.
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 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.