Yahoo Finance The five-year decline in earnings for Sulzer VTX:SUN) isn't encouraging, but shareholders are still up 10% over that period
Sulzer Ltd (VTX:SUN) shareholders should be happy to see the share price up 22% in the last quarter. But over the last half decade, the stock has not performed well. After all, the share price is down 42% in that time, significantly under-performing the market.
Since Sulzer has shed CHF80m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
View our latest analysis for Sulzer
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 five years over which the share price declined, Sulzer's earnings per share (EPS) dropped by 7.8% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 10% per year, over the period. This implies that the market was previously too optimistic about the stock. Of course, with a P/E ratio of 78.90, the market remains optimistic.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It might be well worthwhile taking a look at our free report on Sulzer's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Sulzer, it has a TSR of 10% 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
The total return of 14% received by Sulzer shareholders over the last year isn't far from the market return of -15%. Longer term investors wouldn't be so upset, since they would have made 2%, each year, over five years. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 3 warning signs for Sulzer (1 makes us a bit uncomfortable) that you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CH 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.
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