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On average, over time, stock markets tend to rise higher. This makes investing attractive. But if when you choose to buy stocks, some of them will be below average performers. Over the last year the Altria Group, Inc. (NYSE:MO) share price is up 26%, but that’s less than the broader market return. However, the longer term returns haven’t been so impressive, with the stock up just 13% in the last three years.
With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for Altria Group
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 the last year Altria Group grew its earnings per share (EPS) by 52%. This EPS growth is significantly higher than the 26% increase in the share price. Therefore, it seems the market isn’t as excited about Altria Group as it was before. This could be an opportunity. The caution is also evident in the lowish P/E ratio of 8.37.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how Altria Group has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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, Altria Group’s TSR for the last 1 year was 38%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
Altria Group provided a TSR of 38% over the last twelve months. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 11% per year over five year. It is possible that returns will improve along with the business fundamentals. It’s always interesting to track share price performance over the longer term. But to understand Altria Group better, we need to consider many other factors. Case in point: We’ve spotted 2 warning signs for Altria Group you should be aware of, and 1 of them shouldn’t be ignored.