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If you buy and hold a stock for many years, you'd hope to be making a profit. Furthermore, you'd generally like to see the share price rise faster than the market. But L3Harris Technologies, Inc. (NYSE:LHX) has fallen short of that second goal, with a share price rise of 21% over five years, which is below the market return. Zooming in, the stock is up just 3.5% in the last year.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 five years of share price growth, L3Harris Technologies achieved compound earnings per share (EPS) growth of 5.4% per year. This EPS growth is higher than the 4% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that L3Harris Technologies has improved its bottom line lately, but is it going to grow revenue? Check if analysts think L3Harris Technologies will grow revenue in the future.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, L3Harris Technologies' TSR for the last 5 years was 34%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
L3Harris Technologies provided a TSR of 5.7% over the last twelve months. But that return falls short of the market. On the bright side, the longer term returns (running at about 6% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 2 warning signs for L3Harris Technologies you should be aware of.