Yahoo Finance Did Changing Sentiment Drive Linamar’s (TSE:LNR) Share Price Down By 31%?
Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market – but in the process, they risk under-performance. Investors in Linamar Corporation (TSE:LNR) have tasted that bitter downside in the last year, as the share price dropped 31%. That’s well bellow the market return of 3.6%. However, the longer term returns haven’t been so bad, with the stock down 16% in the last three years. There was little comfort for shareholders in the last week as the price declined a further 2.0%.
View our latest analysis for Linamar
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During the unfortunate twelve months during which the Linamar share price fell, it actually saw its earnings per share (EPS) improve by 13%. It could be that the share price was previously over-hyped. The divergence between the EPS and the share price is quite notable, during the year. So it’s easy to justify a look at some other metrics.
Given the yield is quite low, at 0.9%, we doubt the dividend can shed much light on the share price. Linamar managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don’t readily explain the share price drop, there might be an opportunity if the market has overreacted.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. If you are thinking of buying or selling Linamar stock, you should check out this free report showing analyst profit forecasts.
What about the Total Shareholder Return (TSR)?
Investors should note that there’s a difference between Linamar’s total shareholder return (TSR) and its share price change, which we’ve covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Its history of dividend payouts mean that Linamar’s TSR, which was a 31% drop over the last year, was not as bad as the share price return.
A Different Perspective
Investors in Linamar had a tough year, with a total loss of 31% (including dividends), against a market gain of about 3.6%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 1.5% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Linamar by clicking this link.
Linamar is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
