Buying a low-cost index fund will get you the average market return. But across the board there are plenty of stocks that underperform the market. For example, the AECOM (NYSE:ACM) share price return of 15% over three years lags the market return in the same period. Zooming in, the stock is up just 4.6% in the last year.
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 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 three years of share price growth, AECOM achieved compound earnings per share growth of 48% per year. The average annual share price increase of 4.7% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that AECOM has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
We're pleased to report that AECOM shareholders have received a total shareholder return of 4.6% over one year. There's no doubt those recent returns are much better than the TSR loss of 1.2% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Is AECOM cheap compared to other companies? These 3 valuation measures might help you decide.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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 firstname.lastname@example.org. 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.