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- NYSE:PRIM
Primoris Services (NASDAQ:PRIM) sheds 3.9% this week, as yearly returns fall more in line with earnings growth
By buying an index fund, you can roughly match the market return with ease. But if you pick the right individual stocks, you could make more than that. Just take a look at Primoris Services Corporation (NASDAQ:PRIM), which is up 80%, over three years, soundly beating the market return of 60% (not including dividends).
Although Primoris Services has shed US$52m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
View our latest analysis for Primoris Services
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 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 three years of share price growth, Primoris Services achieved compound earnings per share growth of 16% per year. In comparison, the 22% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Primoris Services has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
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, Primoris Services' TSR for the last 3 years was 86%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
While it's certainly disappointing to see that Primoris Services shares lost 3.5% throughout the year, that wasn't as bad as the market loss of 12%. Longer term investors wouldn't be so upset, since they would have made 0.6%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Primoris Services (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.
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 American exchanges.
What are the risks and opportunities for Primoris Services?
Primoris Services Corporation, a specialty contractor company, provides a range of specialty construction, fabrication, maintenance, replacement, and engineering services in the United States and Canada.
Rewards
Trading at 59.8% below our estimate of its fair value
Earnings are forecast to grow 18.93% per year
Earnings have grown 14.8% per year over the past 5 years
Risks
Debt is not well covered by operating cash flow
Significant insider selling over the past 3 months
Further research on
Primoris Services
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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.
About NYSE:PRIM
Primoris Services
Primoris Services Corporation, a specialty contractor company, provides a range of specialty construction, fabrication, maintenance, replacement, and engineering services in the United States and Canada.
Undervalued with acceptable track record.
