U.S. Markets closed
  • S&P 500

    4,008.01
    -15.88 (-0.39%)
     
  • Dow 30

    32,223.42
    +26.76 (+0.08%)
     
  • Nasdaq

    11,662.79
    -142.21 (-1.20%)
     
  • Russell 2000

    1,783.65
    -9.01 (-0.50%)
     
  • Crude Oil

    114.18
    +3.69 (+3.34%)
     
  • Gold

    1,825.40
    +17.20 (+0.95%)
     
  • Silver

    21.64
    +0.64 (+3.04%)
     
  • EUR/USD

    1.0434
    +0.0017 (+0.1669%)
     
  • 10-Yr Bond

    2.8770
    -0.0580 (-1.98%)
     
  • Vix

    27.55
    -1.32 (-4.57%)
     
  • GBP/USD

    1.2319
    +0.0056 (+0.4583%)
     
  • USD/JPY

    129.0660
    -0.1190 (-0.0921%)
     
  • BTC-USD

    29,603.13
    -951.36 (-3.11%)
     
  • CMC Crypto 200

    663.56
    +420.88 (+173.43%)
     
  • FTSE 100

    7,464.80
    +46.65 (+0.63%)
     
  • Nikkei 225

    26,547.05
    +119.40 (+0.45%)
     

How Much Did British American Tobacco's (LON:BATS) Shareholders Earn On Their Investment Over The Last Five Years?

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

For many, the main point of investing is to generate higher returns than the overall market. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in British American Tobacco p.l.c. (LON:BATS), since the last five years saw the share price fall 35%. It's up 1.2% in the last seven days.

See our latest analysis for British American Tobacco

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During the unfortunate half decade during which the share price slipped, British American Tobacco actually saw its earnings per share (EPS) improve by 3.9% per year. 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). Alternatively, growth expectations may have been unreasonable in the past.

Based on these numbers, we'd venture that the market may have been over-optimistic about forecast growth, half a decade ago. Having said that, we might get a better idea of what's going on with the stock by looking at other metrics.

The steady dividend doesn't really explain why the share price is down. It's not immediately clear to us why the stock price is down but further research might provide some answers.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

earnings-and-revenue-growth
earnings-and-revenue-growth

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for British American Tobacco 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 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for British American Tobacco the TSR over the last 5 years was -14%, 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

British American Tobacco shareholders are down 7.1% for the year (even including dividends), but the market itself is up 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 2 warning signs for British American Tobacco you should be aware of.

British American Tobacco is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.