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. But Synchrony Financial (NYSE:SYF) has fallen short of that second goal, with a share price rise of 32% over five years, which is below the market return. Meanwhile, the last twelve months saw the share price rise 4.3%.
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 five years of share price growth, Synchrony Financial achieved compound earnings per share (EPS) growth of 9.9% per year. The EPS growth is more impressive than the yearly share price gain of 5.8% over the same period. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.90.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Synchrony Financial has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Synchrony Financial will grow revenue in the future.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Synchrony Financial the TSR over the last 5 years was 42%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Synchrony Financial shareholders have received a total shareholder return of 7.1% over the last year. That's including the dividend. Having said that, the five-year TSR of 7.3% a year, is even better. Before spending more time on Synchrony Financial it might be wise to click here to see if insiders have been buying or selling shares.
We will like Synchrony Financial better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.