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For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Sensata Technologies Holding plc (NYSE:ST) shareholders have had that experience, with the share price dropping 47% in three years, versus a market return of about 26%. And over the last year the share price fell 24%, so we doubt many shareholders are delighted.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
Sensata Technologies Holding became profitable within the last five years. That would generally be considered a positive, so we are surprised to see the share price is down. So given the share price is down it's worth checking some other metrics too.
With a rather small yield of just 1.8% we doubt that the stock's share price is based on its dividend. With revenue flat over three years, it seems unlikely that the share price is reflecting the top line. There doesn't seem to be any clear correlation between the fundamental business metrics and the share price. That could mean that the stock was previously overrated, or it could spell opportunity now.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Sensata Technologies Holding is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Sensata Technologies Holding will earn in the future (free analyst consensus estimates)
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Sensata Technologies Holding's TSR for the last 3 years was -45%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.