The L.S. Starrett Company (NYSE:SCX) shareholders should be happy to see the share price up 20% in the last week. But over the last half decade, the stock has not performed well. You would have done a lot better buying an index fund, since the stock has dropped 19% in that half decade.
While the last five years has been tough for L.S. Starrett shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.
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.
During five years of share price growth, L.S. Starrett moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.
In contrast to the share price, revenue has actually increased by 1.4% a year in the five year period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between L.S. Starrett's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. L.S. Starrett's TSR of was a loss of 16% for the 5 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
L.S. Starrett shareholders are down 9.8% over twelve months, which isn't far from the market return of -9.8%. Unfortunately, last year's performance is a deterioration of an already poor long term track record, given the loss of 3% per year over the last five years. It will probably take a substantial improvement in the fundamental performance for the company to reverse this trend. It's always interesting to track share price performance over the longer term. But to understand L.S. Starrett better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for L.S. Starrett you should be aware of, and 1 of them is potentially serious.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.