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Autoliv, Inc. (NYSE:ALV) shareholders should be happy to see the share price up 11% in the last quarter. But if you look at the last five years the returns have not been good. In fact, the share price is down 35%, which falls well short of the return you could get by buying an index fund.
So let’s have a look and see if the longer term performance of the company has been in line with the underlying business’ progress.
Check out the opportunities and risks within the US Auto Components industry.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Looking back five years, both Autoliv’s share price and EPS declined; the latter at a rate of 6.4% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 8% per year, over the period. So it seems the market was too confident about the business, in the past.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It’s probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Autoliv’s 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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Autoliv’s TSR for the last 5 years was 2.0%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While it’s certainly disappointing to see that Autoliv shares lost 13% throughout the year, that wasn’t as bad as the market loss of 19%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 0.4% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. 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 2 warning signs with Autoliv , and understanding them should be part of your investment process.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
What are the risks and opportunities for Autoliv?
Autoliv, Inc., through its subsidiaries, develops, manufactures, and supplies passive safety systems to the automotive industry in Europe, the Americas, China, Japan, and rest of Asia.
View Full Analysis
Rewards
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Trading at 46.2% below our estimate of its fair value
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Earnings are forecast to grow 24.46% per year
Risks
View all Risks and Rewards
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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