It is a pleasure to report that the Leggett & Platt, Incorporated (NYSE:LEG) is up 41% in the last quarter. But over the last half decade, the stock has not performed well. After all, the share price is down 20% in that time, significantly under-performing the market.
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…’ 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 over which the share price declined, Leggett & Platt’s earnings per share (EPS) dropped by 0.8% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 4.5% per year, over the period. So it seems the market was too confident about the business, in the past.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Leggett & Platt’s 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 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. As it happens, Leggett & Platt’s TSR for the last 5 years was -6.0%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Leggett & Platt provided a TSR of 1.3% over the last twelve months. But that return falls short of the market. On the bright side, that’s still a gain, and it is certainly better than the yearly loss of about 1.2% endured over half a decade. It could well be that the business is stabilizing. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 3 warning signs with Leggett & Platt , and understanding them should be part of your investment process.
We will like Leggett & Platt 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.
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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. 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.
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