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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the Loews Corporation (NYSE:L) share price is up 35% in the last five years, that's less than the market return. Meanwhile, the last twelve months saw the share price rise 2.9%.
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.
During five years of share price growth, Loews actually saw its EPS drop 27% per year.
Essentially, it doesn't seem likely that investors are focused on 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 doubt the modest 0.5% dividend yield is attracting many buyers to the stock. We are not particularly impressed by the annual compound revenue growth of 0.7% over five years. So why is the share price up? It's not immediately obvious to us, but a closer look at the company's progress over time might yield answers.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Loews the TSR over the last 5 years was 39%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Loews provided a TSR of 3.6% over the last twelve months. But that was short of the market average. On the bright side, the longer term returns (running at about 7% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. For instance, we've identified 2 warning signs for Loews that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.
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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