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The main point of long-term investing is to make money. But more than that, you want it to rise above the market average. Unfortunately for shareholders, Capital One Financial Corporation (NYSE:COF) stock has increased 64% over the past five years, which is below the market return. Zooming in on this, the stock price has risen a respectable 14% in the last year.
After the big rally over the past week, it’s worth checking whether the long-term returns are driven by improving fundamentals.
Check out our latest analysis for Capital One Financial.
in his essay Graham & Doddsville SuperInvestors Warren Buffett has said that stock prices do not always rationally reflect the value of a company. One way he looks at how market sentiment has changed over time is to look at the interaction between a company’s stock price and his earnings per share (EPS).
Capital One Financial achieved compound earnings per share (EPS) growth of 12% per year over a five-year period of share price appreciation. This EPS growth is quite close to the average annual increase in share price of 10%. This shows that investor sentiment toward the company has not changed significantly. In fact, stock prices seem to largely reflect EPS growth.
You can see below how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Capital One Financial has improved its earnings over the past three years, but what does the future have in store? How has its balance sheet strengthened (or weakened) over time? You can see. free Interactive graphics.
What will happen to the dividend?
It’s important to consider not only the share price return, but also the total shareholder return for a particular stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that Capital One Financial’s TSR over the last five years was 80%, which is better than the share price return mentioned above. Therefore, the dividend paid by the company is total Shareholder returns.
different perspective
Capital One Financial offered a TSR of 17% over the last twelve months. Unfortunately, this falls short of market returns. The silver lining is that this return was actually better than his five-year average annual return of 13%. As the fundamentals of your business improve, so too can your profits. I think it’s very interesting to look at stock price over the long term as an indicator of business performance. But to really gain insight, you need to consider other information as well. For example, consider risk.Every company has them and we discovered that 2 warning signs for Capital One Financial you should know about.
If you want to buy stocks with management, you might like this free List of companies. (Hint: Insiders are buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
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