It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero.  But in contrast you can make much more than 100% if the company does well.  For instance the Alcoa Corporation (NYSE:AA) share price is 252% higher than it was three years ago.  Most would be happy with that.    It's also good to see the share price up 21% over the last quarter.    This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report.

While the stock has fallen 5.7% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.  

See our latest analysis for Alcoa

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...'  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 three years of share price growth, Alcoa moved from a loss to profitability.   That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.  

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

NYSE:AA Earnings Per Share Growth January 24th 2023

It is of course excellent to see how Alcoa has grown profits over the years, but the future is more important for shareholders.  If you are thinking of buying or selling Alcoa stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock.  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.  In the case of Alcoa, it has a TSR of 255% for the last 3 years. That exceeds its share price return that we previously mentioned.  And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market lost about 8.1% in the twelve months, Alcoa shareholders did even worse, losing 15% (even including dividends).  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 0.1% over the last half decade.  We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business.        If you would like to research Alcoa in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

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.