We think intelligent long term investing is the way to go. But that doesn’t mean long term investors can avoid big losses. To wit, the Bayer Aktiengesellschaft (ETR:BAYN) share price managed to fall 64% over five long years. That’s not a lot of fun for true believers. And some of the more recent buyers are probably worried, too, with the stock falling 40% in the last year. Unfortunately the share price momentum is still quite negative, with prices down 16% in thirty days.
Now let’s have a look at the company’s fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for Bayer
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).
During five years of share price growth, Bayer moved from a loss to profitability. On the other hand, it reported a trailing twelve months loss, suggesting it isn’t reliably profitable. Other metrics might give us a better handle on how its value is changing over time.
We don’t think that the 0.4% is big factor in the share price, since it’s quite small, as dividends go. In contrast to the share price, revenue has actually increased by 3.3% a year in the five year period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Bayer is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Bayer stock, you should check out this free report showing analyst consensus estimates for future profits.
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Bayer’s TSR for the last 5 years was -58%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
