Should A. O. Smith (NYSE:AOS) Be Disappointed With Their 34% Profit?

While A. O. Smith Corporation (NYSE:AOS) shareholders are probably generally happy, the stock hasn’t had particularly good run recently, with the share price falling 19% in the last quarter. But the silver lining is the stock is up over five years. Unfortunately its return of 34% is below the market return of 71%.

See our latest analysis for A. O. Smith

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Over half a decade, A. O. Smith managed to grow its earnings per share at 14% a year. The EPS growth is more impressive than the yearly share price gain of 6.0% over the same period. So it seems the market isn’t so enthusiastic about the stock these days.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

NYSE:AOS Past and Future Earnings, February 10th 2020
NYSE:AOS Past and Future Earnings, February 10th 2020

We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, A. O. Smith’s TSR for the last 5 years was 43%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

A. O. Smith shareholders are down 14% for the year (even including dividends) , but the market itself is up 23%. 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 7.5% per year over half a decade. 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. If you would like to research A. O. Smith in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

We will like A. O. Smith 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.

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.

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. Thank you for reading.