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The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. But Loews Corporation (NYSE:L) has fallen short of that second goal, with a share price rise of 58% over five years, which is below the market return. Looking at the last year alone, the stock is up 20%.
In light of the stock dropping 3.8% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.
Check out our latest analysis for Loews
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over half a decade, Loews managed to grow its earnings per share at 34% a year. The EPS growth is more impressive than the yearly share price gain of 10% over the same period. So it seems the market isn't so enthusiastic about the stock these days. The reasonably low P/E ratio of 10.61 also suggests market apprehension.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Loews' earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Loews, it has a TSR of 62% 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.
A Different Perspective
Loews shareholders are up 20% for the year (even including dividends). Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 10% per year over five year. It is possible that returns will improve along with the business fundamentals. 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. Even so, be aware that Loews is showing 1 warning sign in our investment analysis , you should know about...