VMware (NYSE:VMW) Has Compensated Shareholders With A Respectable 80% Return On Their Investment

Source:-simplywall.st

While VMware, Inc. (NYSE:VMW) shareholders are probably generally happy, the stock hasn’t had particularly good run recently, with the share price falling 11% in the last quarter. But the silver lining is the stock is up over five years. However we are not very impressed because the share price is only up 49%, less than the market return of 52%. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 35% drop, in the last year.

View our latest analysis for VMware

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 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 last half decade, VMware became profitable. That would generally be considered a positive, so we’d expect the share price to be up.

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

NYSE:VMW Past and Future Earnings May 1st 2020
NYSE:VMW Past and Future Earnings May 1st 2020
It is of course excellent to see how VMware has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What about the Total Shareholder Return (TSR)?
We’ve already covered VMware’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. VMware hasn’t been paying dividends, but its TSR of 80% exceeds its share price return of 49%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

While the broader market gained around 1.4% in the last year, VMware shareholders lost 35%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 12% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. To that end, you should learn about the 4 warning signs we’ve spotted with VMware (including 2 which is don’t sit too well with us) .

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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