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Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by nVent Electric plc (NYSE:NVT) shareholders over the last year, as the share price declined 17%. That's disappointing when you consider the market returned 0.1%. nVent Electric may have better days ahead, of course; we've only looked at a one year period. On top of that, the share price has dropped a further 16% in a month. However, we note the price may have been impacted by the broader market, which is down 7.1% in the same time period.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Unfortunately nVent Electric reported an EPS drop of 34% for the last year. This fall in the EPS is significantly worse than the 17% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that nVent Electric has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on nVent Electric's balance sheet strength is a great place to start, if you want to investigate the stock further.
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 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. In the case of nVent Electric, it has a TSR of -14% for the last year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Given that the market gained 0.1% in the last year, nVent Electric shareholders might be miffed that they lost 14% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Notably, the loss over the last year isn't as bad as the 15% drop in the last three months. This probably signals that the business has recently disappointed shareholders - it will take time to win them back. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
But note: nVent Electric 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.
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.