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Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Comerica Incorporated (NYSE:CMA) shareholders have had that experience, with the share price dropping 30% in three years, versus a market return of about 22%. Even worse, it's down 11% in about a month, which isn't fun at all.
Since Comerica has shed US$850m 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 Comerica
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).
Comerica saw its EPS decline at a compound rate of 21% per year, over the last three years. In comparison the 11% compound annual share price decline isn't as bad as the EPS drop-off. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Comerica's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. We note that for Comerica the TSR over the last 3 years was -18%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Comerica provided a TSR of 15% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 1.5% per year over five year. It is possible that returns will improve along with the business fundamentals. It's always interesting to track share price performance over the longer term. But to understand Comerica better, we need to consider many other factors. Even so, be aware that Comerica is showing 2 warning signs in our investment analysis , you should know about...