When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But BorgWarner Inc. (NYSE:BWA) has fallen short of that second goal, with a share price rise of 39% over five years, which is below the market return. On a brighter note, more newer shareholders are probably rather content with the 24% share price gain over twelve months.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
BorgWarner's earnings per share are down 5.9% per year, despite strong share price performance over five years.
This means it's unlikely the market is judging the company based on earnings growth. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.
The modest 1.4% dividend yield is unlikely to be propping up the share price. On the other hand, BorgWarner's revenue is growing nicely, at a compound rate of 3.2% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
BorgWarner is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for BorgWarner in this interactive graph of future profit estimates.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. In the case of BorgWarner, it has a TSR of 50% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
BorgWarner provided a TSR of 26% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 9% over half a decade It is possible that returns will improve along with the business fundamentals. 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. To that end, you should be aware of the 6 warning signs we've spotted with BorgWarner .
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
This article by Simply Wall St is general in nature. 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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