Yahoo Finance Arrow Electronics (NYSE:ARW) jumps 4.6% this week, though earnings growth is still tracking behind five-year shareholder returns
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 Arrow Electronics, Inc. (NYSE:ARW) has fallen short of that second goal, with a share price rise of 53% over five years, which is below the market return. Zooming in, the stock is up a respectable 14% in the last year.
Since the stock has added US$303m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
Check out our latest analysis for Arrow Electronics
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.
During five years of share price growth, Arrow Electronics achieved compound earnings per share (EPS) growth of 15% per year. This EPS growth is higher than the 9% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.62.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how Arrow Electronics has grown profits over the years, but the future is more important for shareholders. This free interactive report on Arrow Electronics' balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Arrow Electronics shareholders are up 14% for the year. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 9% over half a decade It is possible that returns will improve along with the business fundamentals. 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. For instance, we've identified 2 warning signs for Arrow Electronics (1 shouldn't be ignored) that you should be aware of.
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.
