If you buy and hold a stock for many years, you'd hope to be making a profit.  But more than that, you probably want to see it rise more than the market average.  Unfortunately for shareholders, while the Texas Instruments Incorporated (NASDAQ:TXN) share price is up 53% in the last five years, that's less than the market return.   Zooming in, the stock is up a respectable 10% in the last year.      

While the stock has fallen 9.7% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.  

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business.  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).

Over half a decade, Texas Instruments managed to grow its earnings per share at 0.7% a year.   This EPS growth is slower than the share price growth of 9% per year, over the same period.  This suggests that market participants hold the company in higher regard, these days.  And that's hardly shocking given the track record of growth.  

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

NasdaqGS:TXN Earnings Per Share Growth August 8th 2024

This free interactive report on Texas Instruments' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.  

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested.  Arguably, the TSR gives a more comprehensive picture of the return generated by a stock.  We note that for Texas Instruments the TSR over the last 5 years was 76%, 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

Texas Instruments shareholders are up 13% for the year (even including dividends).  But that was short of the market average.    On the bright side, that's still a gain, and it's actually better than the average return of 12% over half a decade  It is possible that returns will improve along with the business 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.   For example, we've discovered 1 warning sign for Texas Instruments that you should be aware of before investing here.  

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.