Investors can buy low cost index fund if they want to receive the average market return. But across the board there are plenty of stocks that underperform the market. That’s what has happened with the Lindsay Corporation (NYSE:LNN) share price. It’s up 15% over three years, but that is below the market return. Disappointingly, the share price is down 3.7% in the last year.
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 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).
During the three years of share price growth, Lindsay actually saw its earnings per share (EPS) drop 14% per year.
The strong decline in earnings per share suggests the market isn’t using EPS to judge the company. So we’ll need to take a look at some different metrics to try to understand why the share price remains solid.
The modest 1.4% dividend yield is unlikely to be propping up the share price. Do you think that shareholders are buying for the 0.3% per annum revenue growth trend? We don’t. While we don’t have an obvious theory to explain the share price rise, a closer look at the data might be enlightening.
The graphic below depicts how revenue has changed over time.
If you are thinking of buying or selling Lindsay stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Lindsay’s TSR for the last 3 years was 20%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market gained around 9.2% in the last year, Lindsay shareholders lost 2.3% (even including dividends) . However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn’t be so upset, since they would have made 3.0%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
We will like Lindsay better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.