Goodyear Tire & Rubber's (NASDAQ:GT) earnings have declined over five years, contributing to shareholders 65% loss

·3 min read

Generally speaking long term investing is the way to go. But no-one is immune from buying too high. For example the The Goodyear Tire & Rubber Company (NASDAQ:GT) share price dropped 68% over five years. That is extremely sub-optimal, to say the least. And some of the more recent buyers are probably worried, too, with the stock falling 36% in the last year. Furthermore, it's down 20% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 17% in the same timeframe.

While the stock has risen 3.1% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

View our latest analysis for Goodyear Tire & Rubber

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Goodyear Tire & Rubber moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics may better explain the share price move.

Revenue is actually up 0.2% over the time period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

earnings-and-revenue-growth
earnings-and-revenue-growth

We know that Goodyear Tire & Rubber has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Goodyear Tire & Rubber will earn in the future (free profit forecasts).

What about the Total Shareholder Return (TSR)?

We've already covered Goodyear Tire & Rubber's share price action, but we should also mention its total shareholder return (TSR). 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. Dividends have been really beneficial for Goodyear Tire & Rubber shareholders, and that cash payout explains why its total shareholder loss of 65%, over the last 5 years, isn't as bad as the share price return.

A Different Perspective

While the broader market lost about 19% in the twelve months, Goodyear Tire & Rubber shareholders did even worse, losing 36%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 11% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 3 warning signs for Goodyear Tire & Rubber you should be aware of, and 1 of them makes us a bit uncomfortable.

If you are like me, then you will 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. 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.