The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For instance the Exxon Mobil Corporation (NYSE:XOM) share price is 140% higher than it was three years ago. That sort of return is as solid as granite.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
See our latest analysis for Exxon Mobil
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
Exxon Mobil was able to grow its EPS at 79% per year over three years, sending the share price higher. This EPS growth is higher than the 34% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 6.94 also reflects the negative sentiment around the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Exxon Mobil has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Exxon Mobil's balance sheet strength is a great place to start, if you want to investigate the stock further.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Exxon Mobil, it has a TSR of 182% for the last 3 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
It's nice to see that Exxon Mobil shareholders have received a total shareholder return of 30% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 11%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Exxon Mobil , and understanding them should be part of your investment process.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
What are the risks and opportunities for Exxon Mobil?
Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas in the United States and internationally.
Rewards
Trading at 12.5% below our estimate of its fair value
Earnings grew by 139.2% over the past year
Risks
Earnings are forecast to decline by an average of 14.1% per year for the next 3 years
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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2023-07-12 11:05:06Z
CBMifWh0dHBzOi8vc2ltcGx5d2FsbC5zdC9zdG9ja3MvdXMvZW5lcmd5L255c2UteG9tL2V4eG9uLW1vYmlsL25ld3MvZXh4b24tbW9iaWxzLW55c2V4b20taW52ZXN0b3JzLXdpbGwtYmUtcGxlYXNlZC13aXRoLXRoZWlyLXN00gGBAWh0dHBzOi8vc2ltcGx5d2FsbC5zdC9zdG9ja3MvdXMvZW5lcmd5L255c2UteG9tL2V4eG9uLW1vYmlsL25ld3MvZXh4b24tbW9iaWxzLW55c2V4b20taW52ZXN0b3JzLXdpbGwtYmUtcGxlYXNlZC13aXRoLXRoZWlyLXN0L2FtcA
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