While not a mind-blowing move, it is good to see that the Walgreens Boots Alliance, Inc. (NASDAQ:WBA) share price has gained 16% in the last three months. But if you look at the last five years the returns have not been good. You would have done a lot better buying an index fund, since the stock has dropped 42% in that half decade.
While the last five years has been tough for Walgreens Boots Alliance shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.
See our latest analysis for Walgreens Boots Alliance
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
During the unfortunate half decade during which the share price slipped, Walgreens Boots Alliance actually saw its earnings per share (EPS) improve by 5.7% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
Due to the lack of correlation between the EPS growth and the falling share price, it's worth taking a look at other metrics to try to understand the share price movement.
We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. It's not immediately clear to us why the stock price is down but further research might provide some answers.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Walgreens Boots Alliance is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. If you are thinking of buying or selling Walgreens Boots Alliance stock, you should check out this free report showing analyst consensus estimates for future profits.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Walgreens Boots Alliance the TSR over the last 5 years was -30%, 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 Walgreens Boots Alliance shares lost 5.0% throughout the year, that wasn't as bad as the market loss of 17%. What is more upsetting is the 5% per annum loss investors have suffered over the last half decade. This sort of share price action isn't particularly encouraging, but at least the losses are slowing. 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. Even so, be aware that Walgreens Boots Alliance is showing 2 warning signs in our investment analysis , you should know about...
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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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