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It might be of some concern to shareholders to see the Siemens Aktiengesellschaft (ETR:SIE) share price down 18% in the last month. But that scarcely detracts from the really solid long term returns generated by the company over five years. We think most investors would be happy with the 120% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Ultimately business performance will determine whether the stock price continues the positive long term trend.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over half a decade, Siemens managed to grow its earnings per share at 9.7% a year. This EPS growth is lower than the 17% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Siemens the TSR over the last 5 years was 180%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Siemens shareholders gained a total return of 9.2% during the year. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 23% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 1 warning sign for Siemens that you should be aware of.