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The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Mueller Water Products, Inc. (NYSE:MWA) have tasted that bitter downside in the last year, as the share price dropped 24%. That contrasts poorly with the market return of 0.3%. However, the longer term returns haven’t been so bad, with the stock down 16% in the last three years. Even worse, it’s down 14% in about a month, which isn’t fun at all. We do note, however, that the broader market is down 6.1% in that period, and this may have weighed on the share price.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
Unfortunately Mueller Water Products reported an EPS drop of 72% for the last year. This fall in the EPS is significantly worse than the 24% the share price fall. So the market may not be too worried about the EPS figure, at the moment — or it may have expected earnings to drop faster. With a P/E ratio of 48.33, it’s fair to say the market sees an EPS rebound on the cards.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Dive deeper into Mueller Water Products’s key metrics by checking this interactive graph of Mueller Water Products’s earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Mueller Water Products’s total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that Mueller Water Products’s TSR, which was a 22% drop over the last year, was not as bad as the share price return.
A Different Perspective
Investors in Mueller Water Products had a tough year, with a total loss of 22% (including dividends), against a market gain of about 0.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 2.1% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
Of course Mueller Water Products may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.
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.