While it may not be enough for some shareholders, we think it is good to see the Tennant Company (NYSE:TNC) share price up 19% in a single quarter. But in truth the last year hasn’t been good for the share price. In fact, the price has declined 13% in a year, falling short of the returns you could get by investing in an index fund.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 the unfortunate twelve months during which the Tennant share price fell, it actually saw its earnings per share (EPS) improve by 127%. Of course, the situation might betray previous over-optimism about growth. It’s surprising to see the share price fall so much, despite the improved EPS. But we might find some different metrics explain the share price movements better.
With a low yield of 1.3% we doubt that the dividend influences the share price much. Revenue was fairly steady year on year, which isn’t usually such a bad thing. But the share price might be lower because the market expected a meaningful improvement, and got none.
We know that Tennant has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Tennant will earn in the future (free profit forecasts).
What about the Total Shareholder Return (TSR)?
We’ve already covered Tennant’s share price action, but we should also mention its total shareholder return (TSR). 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. Tennant’s TSR of was a loss of 12% for the year. That wasn’t as bad as its share price return, because it has paid dividends.
A Different Perspective
Investors in Tennant had a tough year, with a total loss of 12% (including dividends), against a market gain of about 2.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn’t be so upset, since they would have made 0.6%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before forming an opinion on Tennant you might want to consider these 3 valuation metrics.
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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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