Stock Analysis

Despite lower earnings than five years ago, Exelon (NASDAQ:EXC) investors are up 26% since then

NasdaqGS:EXC
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For many, the main point of investing is to generate higher returns than the overall market. But every investor is virtually certain to have both over-performing and under-performing stocks. So we wouldn't blame long term Exelon Corporation (NASDAQ:EXC) shareholders for doubting their decision to hold, with the stock down 24% over a half decade.

If the past week is anything to go by, investor sentiment for Exelon isn't positive, so let's see if there's a mismatch between fundamentals and the share price.

Check out our latest analysis for Exelon

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Looking back five years, both Exelon's share price and EPS declined; the latter at a rate of 0.7% per year. This reduction in EPS is less than the 5% annual reduction in the share price. So it seems the market was too confident about the business, in the past.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
NasdaqGS:EXC Earnings Per Share Growth May 27th 2024

This free interactive report on Exelon's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, Exelon's TSR for the last 5 years was 26%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Exelon shareholders are down 3.2% for the year (even including dividends), but the market itself is up 28%. 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. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Exelon is showing 2 warning signs in our investment analysis , and 1 of those is concerning...

But note: Exelon may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

Valuation is complex, but we're helping make it simple.

Find out whether Exelon is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.