Earnings growth of 6.7% over 3 years hasn't been enough to translate into positive returns for Walt Disney (NYSE:DIS) shareholders

For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term The Walt Disney Company (NYSE:DIS) shareholders have had that experience, with the share price dropping 27% in three years, versus a market return of about 33%. Furthermore, it's down 15% in about a quarter. That's not much fun for holders. Of course, this share price action may well have been influenced by the 9.4% decline in the broader market, throughout the period.

Since Walt Disney has shed US$20b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for Walt Disney

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Although the share price is down over three years, Walt Disney actually managed to grow EPS by 22% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). 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.

With a rather small yield of just 1.0% we doubt that the stock's share price is based on its dividend. Revenue is actually up 6.6% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching Walt Disney more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Walt Disney

A Different Perspective

Walt Disney shareholders are down 12% for the year (even including dividends), but the market itself is up 8.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 1.2%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Walt Disney better, we need to consider many other factors. Even so, be aware that Walt Disney is showing 1 warning sign in our investment analysis , you should know about...

Walt Disney is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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.