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Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Philip Morris International Inc. (NYSE:PM) shareholders have had that experience, with the share price dropping 26% in three years, versus a market return of about 47%.
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 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.
Although the share price is down over three years, Philip Morris International actually managed to grow EPS by 2.9% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.
It's pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. But it's possible a look at other metrics will be enlightening.
We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. Philip Morris International has maintained its top line over three years, so we doubt that has shareholders worried. So it might be worth looking at how revenue growth over time, in greater detail.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Philip Morris International is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Philip Morris International in this interactive graph of future profit estimates.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Philip Morris International's TSR for the last 3 years was -12%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Investors in Philip Morris International had a tough year, with a total loss of 2.1% (including dividends), against a market gain of about 26%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 4% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Philip Morris International better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Philip Morris International .
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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