Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. For example, the State Street Corporation (NYSE:STT) share price is down 14% in the last year. That contrasts poorly with the market return of 10%. However, the longer term returns haven't been so bad, with the stock down 3.2% in the last three years.
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.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
Unfortunately State Street reported an EPS drop of 2.4% for the last year. This reduction in EPS is not as bad as the 14% share price fall. So it seems the market was too confident about the business, a year ago. The less favorable sentiment is reflected in its current P/E ratio of 8.90.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. We note that for State Street the TSR over the last 1 year was -11%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
State Street shareholders are down 11% for the year (even including dividends), but the market itself is up 10%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 2% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand State Street better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for State Street you should know about.
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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.