The primary goal of stock picking is to identify stocks that outperform the market. However, investors often experience a mix of both successful and unsuccessful stock selections. Long-term shareholders of Westpac Banking Corporation (ASX: WBC) might be questioning their decision to hold, given the stock’s 15% decline over the past five years.
Assessing Market Perception: Share Price vs. Earnings per Share (EPS)
To assess whether the company’s financial performance aligns with the shareholder returns, it’s essential to examine the correlation between the two. Despite the efficient markets hypothesis, which assumes market efficiency, empirical evidence suggests that markets can be over-reactive and investors may not always act rationally. A useful way to gauge changing market sentiment is by analyzing the relationship between a company’s share price and its earnings per share (EPS).
Market Consistency
Over the five-year period of the stock’s decline, Westpac Banking’s EPS decreased by an average of 2.9% annually. This decline closely mirrors the 3% average annual decrease in the share price, indicating a consistent market perception. Essentially, the share price has tracked the EPS growth.
Looking Ahead
While it’s positive to observe Westpac Banking’s profit growth over the years, future prospects are crucial for shareholders. For a deeper investigation into the stock, consider exploring the company’s balance sheet strength in this free interactive report.
Dividend Dynamics: Total Shareholder Return (TSR)
When evaluating investment returns, distinguishing between total shareholder return (TSR) and share price return is crucial. TSR accounts for spin-offs, discounted capital raisings, and dividends, assuming the dividends are reinvested. In Westpac Banking’s case, the TSR over the past five years was 9.7%, surpassing the mentioned share price return. Notably, dividend payments largely contribute to this divergence.
Check Top ASX Dividend Paying Stocks Here |
A Different Perspective: Short-Term Challenges, Long-Term Gains
Westpac Banking investors faced challenges in the last year, resulting in a total loss of 3.6%, including dividends, compared to a market gain of approximately 1.4%. However, considering the inherent volatility in the stock market, even strong stocks may underperform over shorter periods.
Long-Term Perspective
On a positive note, long-term shareholders have realized a gain of 1.9% per year over half a decade. The recent sell-off may present an opportunity, prompting a closer examination of fundamental data for signs of a long-term growth trend.
Market Conditions vs. Fundamental Factors
While market conditions impact share prices, other critical factors should also be considered. Notably, we’ve identified 2 warning signs for Westpac Banking that warrant attention, with one causing some concern.
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