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Introducing FedEx (NYSE:FDX), The Stock That Dropped 19% In The Last Three Years

Simply Wall St

For many investors, the main point of stock picking is to generate higher returns than the overall market. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term FedEx Corporation (NYSE:FDX) shareholders have had that experience, with the share price dropping 19% in three years, versus a market return of about 51%. Unhappily, the share price slid 2.3% in the last week.

View our latest analysis for FedEx

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.

FedEx saw its EPS decline at a compound rate of 65% per year, over the last three years. This fall in the EPS is worse than the 6.9% compound annual share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have previously priced some of the drop in. This positive sentiment is also reflected in the generous P/E ratio of 548.60.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

NYSE:FDX Past and Future Earnings, January 23rd 2020

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. It might be well worthwhile taking a look at our free report on FedEx's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for FedEx the TSR over the last 3 years was -17%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Investors in FedEx had a tough year, with a total loss of 9.0% (including dividends) , against a market gain of about 27%. 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 0.9% 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 business. It's always interesting to track share price performance over the longer term. But to understand FedEx better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for FedEx (of which 1 is a bit unpleasant!) you should know about.

FedEx 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.

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.

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. Thank you for reading.