Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Movado Group, Inc. (NYSE:MOV) shareholders over the last year, as the share price declined 43%. That's well bellow the market return of 24%. Even if you look out three years, the returns are still disappointing, with the share price down32% in that time. Shareholders have had an even rougher run lately, with the share price down 30% in the last 90 days.
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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Movado Group stole the show with its EPS rocketing, in the last year. We don't think the growth guide to the sustainable growth rate in this case, but we do think this sort of increase is impressive. So we are surprised the share price is down. Some different data might shed some more light on the situation.
Movado Group's dividend seems healthy to us, so we doubt that the yield is a concern for the market. The revenue trend doesn't seem to explain why the share price is down. Of course, it could simply be that it simply fell short of the market consensus expectations.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Movado Group has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think Movado Group will earn in the future (free profit forecasts).
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Movado Group's total shareholder return (TSR) and its share price change, which we've covered above. 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. Movado Group's TSR of was a loss of 41% for the year. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
Investors in Movado Group had a tough year, with a total loss of 41% (including dividends) , against a market gain of about 24%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4.4% 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. 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. Be aware that Movado Group is showing 3 warning signs in our investment analysis , and 1 of those shouldn't be ignored...
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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