Yahoo Finance The three-year decline in earnings might be taking its toll on MetLife (NYSE:MET) shareholders as stock falls 15% over the past week
While MetLife, Inc. (NYSE:MET) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 19% in the last quarter. But that doesn't undermine the rather lovely longer-term return, if you measure over the last three years. Indeed, the share price is up a very strong 120% in that time. It's not uncommon to see a share price retrace a bit, after a big gain. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.
While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
See our latest analysis for MetLife
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 three years of share price growth, MetLife actually saw its earnings per share (EPS) drop 21% per year.
So we doubt that the market is looking to EPS for its main judge of the company's value. Given this situation, it makes sense to look at other metrics too.
Do you think that shareholders are buying for the 1.3% per annum revenue growth trend? We don't. While we don't have an obvious theory to explain the share price rise, a closer look at the data might be enlightening.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
MetLife is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for MetLife in this interactive graph of future profit estimates.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for MetLife the TSR over the last 3 years was 145%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While it's certainly disappointing to see that MetLife shares lost 6.1% throughout the year, that wasn't as bad as the market loss of 7.3%. Longer term investors wouldn't be so upset, since they would have made 8%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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 - MetLife has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.
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 US 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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