The main goal of investing for the long term is to make money. Better yet, you would like to see the stock price rise more than the market average. Unfortunately for the shareholders, while the BorgWarner Inc. (NYSE: BWA) The stock price has risen 28% over the past five years, less than the market performance. Looking only at last year, the headline is up 18%.

Based on a strong 7-day performance, let’s check out what role company fundamentals have played in generating long-term returns for shareholders.

In his essay Graham-and-Doddsville super-investors Warren Buffett described how stock prices don’t always rationally reflect a company’s value. One way to look at how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).

Over the five years of share price growth, BorgWarner has achieved compound earnings per share (EPS) growth of 3.2% per year. This EPS growth is lower than the 5% average annual increase in the share price. This suggests that market participants hold society in the highest regard these days. This isn’t necessarily surprising given the track record of five-year earnings growth.

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

NYSE: BWA Earnings Per Share Growth September 29, 2021

We know BorgWarner has improved its results lately, but will it increase its revenue? Check whether analysts believe BorgWarner increase income in the future.

What about dividends?

In addition to measuring stock price performance, investors should also consider the total shareholder return (TSR). TSR is a yield calculation that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of any discounted capital increase and spinoff. It’s fair to say that the TSR gives a more complete picture of dividend paying stocks. We note that for BorgWarner the TSR over the past 5 years was 38%, which is better than the share price return mentioned above. And there’s no price guessing that dividend payments are a big part of the reason for the discrepancy!

A different perspective

BorgWarner shareholders are up 19% for the year (including dividends). Unfortunately, this does not match the performance of the market. On the plus side, it’s still a payoff, and it’s actually better than the 7% average return over half a decade. It is possible that returns will improve with company fundamentals. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, know that BorgWarner watch 3 warning signs in our investment analysis , you must know…

If you would rather consult with another company – one with potentially superior finances – then don’t miss this free list of companies that have proven they can increase their profits.

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

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

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