Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. But if you buy individual stocks, you can do both better or worse than that. Unfortunately the Lowe’s Companies, Inc. (NYSE:LOW) share price slid 22% over twelve months. That contrasts poorly with the market return of -11%. Longer term investors have fared much better, since the share price is up 7.7% in three years. In the last ninety days we’ve seen the share price slide 27%. But this could be related to the weak market, which is down 22% in the same period.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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.
During the unfortunate twelve months during which the Lowe’s Companies share price fell, it actually saw its earnings per share (EPS) improve by 92%. Of course, the situation might betray previous over-optimism about growth.
It’s fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.
Revenue was fairly steady year on year, which isn’t usually such a bad thing. However, it is certainly possible the market was expecting an uptick in revenue, and that the share price fall reflects that disappointment.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. So it makes a lot of sense to check out what analysts think Lowe’s Companies will earn in the future (free profit forecasts).
What about the Total Shareholder Return (TSR)?
We’ve already covered Lowe’s Companies’s share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Lowe’s Companies shareholders, and that cash payout explains why its total shareholder loss of 20%, over the last year, isn’t as bad as the share price return.
A Different Perspective
We regret to report that Lowe’s Companies shareholders are down 20% for the year (even including dividends) . Unfortunately, that’s worse than the broader market decline of 11%. 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. Longer term investors wouldn’t be so upset, since they would have made 5.6%, 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. 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. For instance, we’ve identified 2 warning signs for Lowe’s Companies that you should be aware of.
Lowe’s Companies is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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