Investors three-year losses continue as Leggett & Platt (NYSE:LEG) dips a further 3.9% this week, earnings continue to decline

Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Leggett & Platt, Incorporated (NYSE:LEG) shareholders have had that experience, with the share price dropping 43% in three years, versus a market return of about 16%. And more recent buyers are having a tough time too, with a drop of 36% in the last year. The falls have accelerated recently, with the share price down 21% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.

With the stock having lost 3.9% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

Check out our latest analysis for Leggett & Platt

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the three years that the share price fell, Leggett & Platt's earnings per share (EPS) dropped by 2.2% each year. This reduction in EPS is slower than the 17% annual reduction in the share price. So it seems the market was too confident about the business, in the past.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Dive deeper into Leggett & Platt's key metrics by checking this interactive graph of Leggett & Platt's earnings, revenue and cash flow.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Leggett & Platt the TSR over the last 3 years was -34%, 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

Investors in Leggett & Platt had a tough year, with a total loss of 32% (including dividends), against a market gain of about 9.8%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Leggett & Platt better, we need to consider many other factors. For example, we've discovered 3 warning signs for Leggett & Platt that you should be aware of before investing here.

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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 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.