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We believe investing is smart because history shows that stock markets go higher in the long term. But if you choose that path, you're going to buy some stocks that fall short of the market. Unfortunately for shareholders, while the Avista Corporation (NYSE:AVA) share price is up 16% in the last year, that falls short of the market return. In contrast, the longer term returns are negative, since the share price is 14% lower than it was three years ago.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 last year Avista grew its earnings per share (EPS) by 12%. This EPS growth is significantly lower than the 16% increase in the share price. This indicates that the market is now more optimistic about the stock.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Avista has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Avista, it has a TSR of 21% for the last year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Avista shareholders gained a total return of 21% during the year. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 4% over half a decade It is possible that returns will improve along with the business fundamentals. 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. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Avista (of which 1 makes us a bit uncomfortable!) you should know about.
We will like Avista better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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. 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.
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