U.S. Markets closed

Did You Manage To Avoid EOG Resources's (NYSE:EOG) 25% Share Price Drop?

Simply Wall St

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

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. That downside risk was realized by EOG Resources, Inc. (NYSE:EOG) shareholders over the last year, as the share price declined 25%. That falls noticeably short of the market return of around 3.7%. On the other hand, the stock is actually up 7.1% over three years. On top of that, the share price has dropped a further 11% in a month. However, we note the price may have been impacted by the broader market, which is down 5.0% in the same time period.

Check out our latest analysis for EOG Resources

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 unfortunate twelve months during which the EOG Resources share price fell, it actually saw its earnings per share (EPS) improve by 6.6%. Of course, the situation might betray previous over-optimism about growth. It's fair to say that the share price does not seem to be reflecting the EPS growth. So it's well worth checking out some other metrics, too.

Given the yield is quite low, at 1.0%, we doubt the dividend can shed much light on the share price. EOG Resources's revenue is actually up 41% over the last year. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

NYSE:EOG Income Statement, May 29th 2019

EOG Resources is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling EOG Resources stock, you should check out this free report showing analyst consensus estimates for future profits.

What about the Total Shareholder Return (TSR)?

We've already covered EOG Resources's share price action, but we should also mention its total shareholder return (TSR). 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. Dividends have been really beneficial for EOG Resources shareholders, and that cash payout explains why its total shareholder loss of 24%, over the last year, isn't as bad as the share price return.

A Different Perspective

EOG Resources shareholders are down 24% for the year (even including dividends), but the market itself is up 3.7%. 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 3.3% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

But note: EOG Resources 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 US exchanges.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.