Yahoo Finance The one-year shareholder returns and company earnings persist lower as First American Financial (NYSE:FAF) stock falls a further 4.1% in past week
These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. In contrast individual stocks will provide a wide range of possible returns, and may fall short. For example, the First American Financial Corporation (NYSE:FAF) share price fell 23% in the last year, slightly below the market decline of around 18%. However, the longer term returns haven't been so bad, with the stock down 12% in the last three years. The falls have accelerated recently, with the share price down 12% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 5.8% in the same timeframe.
Since First American Financial has shed US$239m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
See our latest analysis for First American Financial
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Unhappily, First American Financial had to report a 7.2% decline in EPS over the last year. This reduction in EPS is not as bad as the 23% share price fall. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock. The P/E ratio of 6.07 also points to the negative market sentiment.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into First American Financial's key metrics by checking this interactive graph of First American Financial's earnings, revenue and cash flow.
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of First American Financial, it has a TSR of -21% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market lost about 18% in the twelve months, First American Financial shareholders did even worse, losing 21% (even including dividends). However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you would like to research First American Financial in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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. 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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