June 19, 2024

The Art of Investment

Mastering the Stock Market Strategies

Even though Chevron (NYSE:CVX) has lost US$11b market cap in last 7 days, shareholders are still up 63% over 3 years

3 min read

By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, the Chevron Corporation (NYSE:CVX) share price is up 45% in the last three years, clearly besting the market return of around 13% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 2.4% in the last year, including dividends.

Since the long term performance has been good but there’s been a recent pullback of 3.8%, let’s check if the fundamentals match the share price.

View our latest analysis for Chevron

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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).

Chevron became profitable within the last three years. That would generally be considered a positive, so we’d expect the share price to be up.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growthearnings-per-share-growth

earnings-per-share-growth

It is of course excellent to see how Chevron has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Chevron’s financial health with this free report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Chevron the TSR over the last 3 years was 63%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Chevron provided a TSR of 2.4% over the last twelve months. But that was short of the market average. On the bright side, the longer term returns (running at about 10% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. Consider risks, for instance. Every company has them, and we’ve spotted 2 warning signs for Chevron you should know about.

But note: Chevron may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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