Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Verizon Communications Inc. (NYSE:VZ) shareholders have had that experience, with the share price dropping 31% in three years, versus a market return of about 27%. And more recent buyers are having a tough time too, with a drop of 25% in the last year.
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.
View our latest analysis for Verizon Communications
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 unfortunate three years of share price decline, Verizon Communications actually saw its earnings per share (EPS) improve by 2.8% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
It looks to us like the market was probably too optimistic around growth three years ago. However, taking a look at other business metrics might shed a bit more light on the share price action.
Given the healthiness of the dividend payments, we doubt that they’ve concerned the market. Revenue has been pretty flat over three years, so that isn’t an obvious reason shareholders would sell. So it might be worth looking at how revenue growth over time, in greater detail.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Verizon Communications is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Verizon Communications, it has a TSR of -20% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
We regret to report that Verizon Communications shareholders are down 21% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 6.7%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. On the bright side, long term shareholders have made money, with a gain of 0.7% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It’s always interesting to track share price performance over the longer term. But to understand Verizon Communications better, we need to consider many other factors. Take risks, for example – Verizon Communications has 2 warning signs we think you should be aware of.
Of course Verizon Communications may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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