The 16% return delivered to Zurn Elkay Water Solutions' (NYSE:ZWS) shareholders actually lagged YoY earnings growth

While not a mind-blowing move, it is good to see that the Zurn Elkay Water Solutions Corporation (NYSE:ZWS) share price has gained 17% in the last three months. But that cannot eclipse the less-than-impressive returns over the last three years. In fact, the share price is down 46% in the last three years, falling well short of the market return.

While the stock has risen 4.1% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.

See our latest analysis for Zurn Elkay Water Solutions

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.

Although the share price is down over three years, Zurn Elkay Water Solutions actually managed to grow EPS by 44% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

The modest 0.9% dividend yield is unlikely to be guiding the market view of the stock. Revenue is actually up 33% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Zurn Elkay Water Solutions further; while we may be missing something on this analysis, there might also be an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We know that Zurn Elkay Water Solutions has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Zurn Elkay Water Solutions' financial health with this free report on its balance sheet.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Zurn Elkay Water Solutions, it has a TSR of 16% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Zurn Elkay Water Solutions shareholders are up 27% for the year (even including dividends). But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 23% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. 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 Zurn Elkay Water Solutions 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 American 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.