It's easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in NVE Corporation (NASDAQ:NVEC) have tasted that bitter downside in the last year, as the share price dropped 37%. That contrasts poorly with the market decline of 0.5%. Even if you look out three years, the returns are still disappointing, with the share price down31% in that time. Shareholders have had an even rougher run lately, with the share price down 25% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 15% in the same timeframe.
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.
Unfortunately NVE reported an EPS drop of 9.8% for the last year. This reduction in EPS is not as bad as the 37% share price fall. Unsurprisingly, given the lack of EPS growth, the market seems to be more cautious about the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, NVE's TSR for the last year was -33%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We regret to report that NVE shareholders are down 33% for the year (even including dividends) . Unfortunately, that's worse than the broader market decline of 0.5%. 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. On the bright side, long term shareholders have made money, with a gain of 0.2% 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. To that end, you should be aware of the 2 warning signs we've spotted with NVE .
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.