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Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in Insteel Industries, Inc. (NASDAQ:IIIN) have tasted that bitter downside in the last year, as the share price dropped 43%. That contrasts poorly with the market return of 2.9%. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 35%) in that time.
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 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).
During the unfortunate twelve months during which the Insteel Industries share price fell, it actually saw its earnings per share (EPS) improve by 10%. It's quite possible that growth expectations may have been unreasonable in the past. The divergence between the EPS and the share price is quite notable, during the year. But we might find some different metrics explain the share price movements better.
With a low yield of 0.6% we doubt that the dividend influences the share price much. Insteel Industries managed to grow revenue over the last year, which is usually a real positive. 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.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for Insteel Industries in this interactive graph of future profit estimates.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Insteel Industries's total shareholder return (TSR) and its share price change, which we've covered above. 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. Dividends have been really beneficial for Insteel Industries shareholders, and that cash payout explains why its total shareholder loss of 43%, over the last year, isn't as bad as the share price return.
A Different Perspective
Insteel Industries shareholders are down 43% for the year (even including dividends), but the market itself is up 2.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 1.8%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Insteel Industries is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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.