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One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. Just take a look at Axalta Coating Systems Ltd. (NYSE:AXTA), which is up 80%, over three years, soundly beating the market return of 58% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 20% in the last year.
Since the stock has added US$323m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
View our latest analysis for Axalta Coating Systems
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the three years of share price growth, Axalta Coating Systems actually saw its earnings per share (EPS) drop 6.6% per year.
This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
It could be that the revenue growth of 6.1% per year is viewed as evidence that Axalta Coating Systems is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Axalta Coating Systems in this interactive graph of future profit estimates.
A Different Perspective
It's nice to see that Axalta Coating Systems shareholders have received a total shareholder return of 20% over the last year. There's no doubt those recent returns are much better than the TSR loss of 1.4% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 2 warning signs for Axalta Coating Systems you should be aware of, and 1 of them is significant.