This week we saw the Regal Beloit Corporation (NYSE:RBC) share price climb by 14%. But in truth the last year hasn't been good for the share price. In fact the stock is down 16% in the last year, well below the market return.
Check out our latest analysis for Regal Beloit
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.
Even though the Regal Beloit share price is down over the year, its EPS actually improved. Of course, the situation might betray previous over-optimism about growth.
The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.
Given the yield is quite low, at 1.7%, we doubt the dividend can shed much light on the share price. In contrast, the 11% drop in revenue is a real concern. If the market sees the weak revenue as jeopardising EPS, that could explain the lower share price.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Take a more thorough look at Regal Beloit's financial health with this free report on its balance sheet.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Regal Beloit's total shareholder return (TSR) and its share price change, which we've covered above. 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. Its history of dividend payouts mean that Regal Beloit's TSR, which was a 14% drop over the last year, was not as bad as the share price return.
A Different Perspective
While the broader market lost about 6.0% in the twelve months, Regal Beloit shareholders did even worse, losing 14% (even including dividends) . However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.3% over the last half decade. 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. 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. Case in point: We've spotted 2 warning signs for Regal Beloit you should be aware of.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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