Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the Worthington Industries, Inc. (NYSE:WOR) share price slid 26% over twelve months. That falls noticeably short of the market return of around 2.3%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 7.5% in three years. Unfortunately the share price momentum is still quite negative, with prices down 12% in thirty days. We do note, however, that the broader market is down 5.5% in that period, and this may have weighed on the share price.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
Unfortunately Worthington Industries reported an EPS drop of 29% for the last year. We note that the 26% share price drop is very close to the EPS drop. Given the lower EPS we might have expected investors to lose confidence in the stock, but that doesn't seemed to have happened. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Worthington Industries's earnings, revenue and cash flow.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Worthington Industries'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. Worthington Industries's TSR of was a loss of 25% for the year. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
Worthington Industries shareholders are down 25% for the year (even including dividends), but the market itself is up 2.3%. 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 1.0% 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. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Worthington Industries by clicking this link.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
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 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. Thank you for reading.