Positive earnings growth hasn't been enough to get WPP (LON:WPP) shareholders a favorable return over the last year

The nature of investing is that you win some, and you lose some. And unfortunately for WPP plc (LON:WPP) shareholders, the stock is a lot lower today than it was a year ago. The share price is down a hefty 60% in that time. To make matters worse, the returns over three years have also been really disappointing (the share price is 59% lower than three years ago). Furthermore, it's down 11% in about a quarter. That's not much fun for holders.

While the stock has risen 6.4% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).

Even though the WPP share price is down over the year, its EPS actually improved. It's quite possible that growth expectations may have been unreasonable in the past.

It's surprising to see the share price fall so much, despite the improved EPS. So it's well worth checking out some other metrics, too.

WPP's dividend seems healthy to us, so we doubt that the yield is a concern for the market. In fact, it seems more likely that the revenue fall of 4.5% in the last year is the worry. The market may be extrapolating the decline, leading to questions around the sustainability of the EPS.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. So it makes a lot of sense to check out what analysts think WPP will earn in the future (free profit forecasts).

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for WPP the TSR over the last 1 year was -58%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

WPP shareholders are down 58% 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 8% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand WPP better, we need to consider many other factors. Even so, be aware that WPP is showing 3 warning signs in our investment analysis , and 1 of those doesn't sit too well with us...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.