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For many, the main point of investing is to generate higher returns than the overall market. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in Barloworld Limited (JSE:BAW), since the last five years saw the share price fall 36%. Unfortunately the share price momentum is still quite negative, with prices down 13% in thirty days.
Since Barloworld has shed R980m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
See our latest analysis for Barloworld
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).
While the share price declined over five years, Barloworld actually managed to increase EPS by an average of 5.6% per year. So it doesn't seem like EPS is a great guide to understanding how the market is valuing the stock. Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
Because of the sharp contrast between the EPS growth rate and the share price growth, we're inclined to look to other metrics to understand the changing market sentiment around the stock.
The steady dividend doesn't really explain why the share price is down. However, revenue has declined at a compound annual rate of 13% per year. With dividends up, but revenue down, some investors might be concluding that the company is no longer growing.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We know that Barloworld has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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 Barloworld, it has a TSR of 11% 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.