TXNM Energy (NYSE:TXNM) shareholders have endured a 7.9% loss from investing in the stock three years ago

For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term TXNM Energy, Inc. (NYSE:TXNM) shareholders have had that experience, with the share price dropping 17% in three years, versus a market return of about 16%.

It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.

See our latest analysis for TXNM Energy

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

During the three years that the share price fell, TXNM Energy's earnings per share (EPS) dropped by 28% each year. This fall in the EPS is worse than the 6% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. This positive sentiment is also reflected in the generous P/E ratio of 45.11.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It might be well worthwhile taking a look at our free report on TXNM Energy'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). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for TXNM Energy the TSR over the last 3 years was -7.9%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

TXNM Energy shareholders are down 2.6% for the year (even including dividends), but the market itself is up 23%. 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 0.5% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand TXNM Energy better, we need to consider many other factors. To that end, you should learn about the 5 warning signs we've spotted with TXNM Energy (including 2 which are concerning) .

Of course TXNM Energy 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.