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Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. Unfortunately for shareholders, while the Kimberly-Clark Corporation (NYSE:KMB) share price is up 20% in the last three years, that falls short of the market return. Disappointingly, the share price is down 11% 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, Kimberly-Clark achieved compound earnings per share growth of 6.1% per year. Notably, the 6% average annual share price gain matches up nicely with the EPS growth rate. That suggests that the market sentiment around the company hasn't changed much over that time. Quite to the contrary, the share price has arguably reflected the EPS growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Kimberly-Clark's earnings, revenue and cash flow.
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, Kimberly-Clark's TSR for the last 3 years was 32%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in Kimberly-Clark had a tough year, with a total loss of 8.4% (including dividends), against a market gain of about 39%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 4%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Kimberly-Clark better, we need to consider many other factors. Even so, be aware that Kimberly-Clark is showing 1 warning sign in our investment analysis , you should know about...
Kimberly-Clark is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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. 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.
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