Verizon Communications' (NYSE:VZ) earnings trajectory could turn positive as the stock rises 3.5% this past week
While it may not be enough for some shareholders, we think it is good to see the Verizon Communications Inc. (NYSE:VZ) share price up 11% in a single quarter. But over the last half decade, the stock has not performed well. In fact, the share price is down 29%, which falls well short of the return you could get by buying an index fund.
On a more encouraging note the company has added US$6.2b to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.
See our latest analysis for Verizon Communications
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Looking back five years, both Verizon Communications' share price and EPS declined; the latter at a rate of 6.0% per year. Notably, the share price has fallen at 7% per year, fairly close to the change in the EPS. This implies that the market has had a fairly steady view of the stock. So it's fair to say the share price has been responding to changes in EPS.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
Dive deeper into Verizon Communications' key metrics by checking this interactive graph of Verizon Communications's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Verizon Communications, it has a TSR of -7.8% for the last 5 years. 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
Verizon Communications shareholders gained a total return of 17% during the year. But that was short of the market average. But at least that's still a gain! Over five years the TSR has been a reduction of 1.5% per year, over five years. It could well be that the business is stabilizing. 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. Consider risks, for instance. Every company has them, and we've spotted 5 warning signs for Verizon Communications you should know about.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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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.
