Powell Industries, Inc. (NASDAQ:POWL) shareholders should be happy to see the share price up 14% in the last quarter. But that doesn’t change the fact that the returns over the last five years have been less than pleasing. After all, the share price is down 35% in that time, significantly under-performing the market.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Powell Industries became profitable within the last five years. Most would consider that to be a good thing, so it’s counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.
Arguably, the revenue drop of 11% a year for half a decade suggests that the company can’t grow in the long term. This has probably encouraged some shareholders to sell down the stock.
We know that Powell Industries has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Powell Industries
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Powell Industries’s TSR for the last 5 years was -24%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We regret to report that Powell Industries shareholders are down 3.5% for the year (even including dividends). Unfortunately, that’s worse than the broader market decline of 0.05%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, longer term shareholders are suffering worse, given the loss of 5.3% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. Keeping this in mind, a solid next step might be to take a look at Powell Industries’s dividend track record. This free interactive graph is a great place to start.
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 US exchanges.
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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.