The worst outcome after buying shares in a company (assuming there is no leverage) would be if you lost all the money you invested. But on a lighter note, a good company can see its stock price increase by more than 100%. For example, the Texas Instruments Incorporated (NASDAQ: TXN) the stock price has soared 112% over the past half-decade. Most would be very happy. Unfortunately, the title fell by 7.5% over one week. But that could be tied to market weakness, with shares selling around 4.3% last week.
Although the past week hurt the company’s five-year performance, let’s take a look at recent trends in underlying activity and see if the gains have been aligned.
Before looking at performance, know that our analysis indicates that TXN is potentially undervalued!
Although the efficient markets hypothesis continues to be taught by some, it has been proven that markets are overly reactive dynamic systems and that investors are not always rational. One way to look at how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).
In five years of share price growth, Texas Instruments has achieved compound earnings per share (EPS) growth of 18% per year. This EPS growth is reasonably close to the average annual share price increase of 16%. This indicates that investor sentiment towards the company has not changed much. Indeed, it would seem that the share price reacts to BPA.
You can see below how the EPS has evolved over time (find out the exact values by clicking on the image).
We know that Texas Instruments has recently improved its results, but will it increase its revenue? Check to see if analysts think Texas Instruments will increase revenue in the future.
What about dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price performance. The TSR incorporates the value of any spin-offs or discounted capital increases, as well as any dividends, on the basis of the assumption that dividends are reinvested. It can be said that the TSR gives a more complete picture of the return generated by a stock. Note that for Texas Instruments the TSR over the past 5 years was 142%, which is better than the stock price return mentioned above. The dividends paid by the company thus inflated the total return to shareholders.
A different perspective
While it hurts that Texas Instruments posted a 6.3% loss over the past twelve months, the broader market was actually worse, posting a 12% loss. Longer-term investors wouldn’t be so upset, as they would have gained 19%, every year, over five years. At best, the past year is only a temporary breach on the path to a brighter future. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. Take risks, for example – Texas Instruments has 3 warning signs (and 2 that are potentially serious) that we think you should know about.
We’ll like Texas Instruments better if we see big insider buying. In the meantime, watch this free list of growing companies with significant and recent insider buying.
Please note that the market returns quoted in this article reflect the average market-weighted returns of stocks currently trading on US exchanges.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
Calculation of discounted cash flows for each share
Simply Wall St performs a detailed calculation of discounted cash flow every 6 hours for every stock in the market, so if you want to find the intrinsic value of any company, just search here. It’s free.