Occidental Petroleum (OXY) Reports Drop in Q2 Earnings with US$458 Million Net Income
Occidental Petroleum Corporation (NYSE:OXY) shareholders might be concerned after seeing the share price drop 25% in the last quarter. But that doesn’t change the fact that shareholders have received really good returns over the last five years. In fact, the share price is 153% higher today. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Of course, that doesn’t necessarily mean it’s cheap now. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 44% decline over the last twelve months.
In light of the stock dropping 21% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company’s positive five-year return.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the five years of share price growth, Occidental Petroleum 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. Since the company was unprofitable five years ago, but not three years ago, it’s worth taking a look at the returns in the last three years, too. In fact, the Occidental Petroleum stock price is 33% lower in the last three years. During the same period, EPS grew by 3.8% each year. It would appear there’s a real mismatch between the increasing EPS and the share price, which has declined -13% a year for three years.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
This free interactive report on Occidental Petroleum’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Occidental Petroleum the TSR over the last 5 years was 164%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
We regret to report that Occidental Petroleum shareholders are down 43% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 2.4%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Longer term investors wouldn’t be so upset, since they would have made 21%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 Occidental Petroleum is showing 4 warning signs in our investment analysis , you should know about…
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.
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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.