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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But even the best stock picker will only win with some selections. So we wouldn't blame long term Bayer Aktiengesellschaft (ETR:BAYN) shareholders for doubting their decision to hold, with the stock down 53% over a half decade.
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.
See our latest analysis for Bayer
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Bayer moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.
We note that the dividend has fallen in the last five years, so that may have contributed to the share price decline.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Bayer is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Bayer will earn in the future (free analyst consensus estimates)
What About Dividends?
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Bayer's TSR for the last 5 years was -42%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's nice to see that Bayer shareholders have received a total shareholder return of 4.9% over the last year. Of course, that includes the dividend. Notably the five-year annualised TSR loss of 7% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It's always interesting to track share price performance over the longer term. But to understand Bayer better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Bayer you should be aware of, and 1 of them doesn't sit too well with us.