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On average, over time, stock markets tend to rise higher. This makes investing attractive. But if you choose that path, you're going to buy some stocks that fall short of the market. Unfortunately for shareholders, while the International Business Machines Corporation (NYSE:IBM) share price is up 12% in the last year, that falls short of the market return. However, the longer term returns haven't been so impressive, with the stock up just 0.9% in the last three years.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
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.
Over the last twelve months, International Business Machines actually shrank its EPS by 34%.
Given the share price gain, we doubt the market is measuring progress with 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 haven't seen International Business Machines increase dividend payments yet, so the yield probably hasn't helped drive the share higher. The slightly diminished revenue is not particularly impressive, at a glance, so that doesn't explain the share price boost.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. If you are thinking of buying or selling International Business Machines stock, you should check out this free report showing analyst profit forecasts.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of International Business Machines, it has a TSR of 18% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
International Business Machines shareholders gained a total return of 18% during the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 3% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. It's always interesting to track share price performance over the longer term. But to understand International Business Machines better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 4 warning signs for International Business Machines you should know about.
International Business Machines 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 US exchanges.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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