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Did Changing Sentiment Drive Exxon Mobil's (NYSE:XOM) Share Price Down A Worrying 51%?

Simply Wall St

For many, the main point of investing is to generate higher returns than the overall market. But every investor is virtually certain to have both over-performing and under-performing stocks. So we wouldn't blame long term Exxon Mobil Corporation (NYSE:XOM) shareholders for doubting their decision to hold, with the stock down 51% over a half decade. And we doubt long term believers are the only worried holders, since the stock price has declined 45% over the last twelve months. Shareholders have had an even rougher run lately, with the share price down 31% in the last 90 days. Of course, this share price action may well have been influenced by the 15% decline in the broader market, throughout the period.

See our latest analysis for Exxon Mobil

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 five years over which the share price declined, Exxon Mobil's earnings per share (EPS) dropped by 17% each year. The share price decline of 13% per year isn't as bad as the EPS decline. So investors might expect EPS to bounce back -- or they may have previously foreseen the EPS decline.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

NYSE:XOM Past and Future Earnings May 18th 2020

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. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Exxon Mobil the TSR over the last 5 years was -40%, 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

Investors in Exxon Mobil had a tough year, with a total loss of 41% (including dividends) , against a market gain of about 1.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9.7% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Take risks, for example - Exxon Mobil has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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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. 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. Thank you for reading.