6.3% earnings growth over 3 years has not materialized into gains for Kaman (NYSE:KAMN) shareholders over that period

Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Kaman Corporation (NYSE:KAMN) shareholders, since the share price is down 52% in the last three years, falling well short of the market return of around 28%. Unfortunately the share price momentum is still quite negative, with prices down 12% in thirty days. We do note, however, that the broader market is down 11% in that period, and this may have weighed on the share price.

If the past week is anything to go by, investor sentiment for Kaman isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

Before we look at the performance, you might like to know that our analysis indicates that KAMN is potentially overvalued!

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

During five years of share price growth, Kaman moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So it's worth looking at other metrics to try to understand the share price move.

Arguably the revenue decline of 3.4% per year has people thinking Kaman is shrinking. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that Kaman has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Kaman stock, you should check out this free report showing analyst profit forecasts.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Kaman the TSR over the last 3 years was -49%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Although it hurts that Kaman returned a loss of 19% in the last twelve months, the broader market was actually worse, returning a loss of 23%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 8% over the last half decade. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. 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. For instance, we've identified 1 warning sign for Kaman that you should be aware of.

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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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.