Investors can buy low cost index fund if they want to receive the average market return. But across the board there are plenty of stocks that underperform the market. That's what has happened with the Global Water Resources, Inc. (NASDAQ:GWRS) share price. It's up 39% over three years, but that is below the market return. On the other hand, the more recent gain of 31% over a year is certainly pleasing.
We don't think that Global Water Resources's modest trailing twelve month profit has the market's full attention at the moment. We think revenue is probably a better guide. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. For shareholders to have confidence a company will grow profits significantly, it must grow revenue.
In the last 3 years Global Water Resources saw its revenue grow at 7.1% per year. That's not a very high growth rate considering it doesn't make profits. The market doesn't seem too pleased with the revenue growth rate, given the modest 12% annual share price gain over three years. A closer look at the revenue and profit trends could uncover help us understand if the company will be profitable in the future.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Global Water Resources has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Global Water Resources's TSR for the last 3 years was 52%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
We're pleased to report that Global Water Resources rewarded shareholders with a total shareholder return of 34% over the last year. And yes, that does include the dividend. That gain actually surpasses the 15% TSR it generated (per year) over three years. These improved returns may hint at some real business momentum, implying that now could be a great time to delve deeper. Before spending more time on Global Water Resources it might be wise to click here to see if insiders have been buying or selling shares.
But note: Global Water 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.
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.
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