Investors can earn very close to the average market return by buying an index fund. In contrast individual stocks will provide a wide range of possible returns, and may fall short. One such example is The Clorox Company (NYSE:CLX), which saw its share price fall 12% over a year, against a market decline of 9.3%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 4.5% in three years.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Unhappily, Clorox had to report a 34% decline in EPS over the last year. The share price fall of 12% isn't as bad as the reduction in earnings per share. It may have been that the weak EPS was not as bad as some had feared.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Dive deeper into Clorox's key metrics by checking this interactive graph of Clorox'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). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Clorox's TSR for the last 1 year was -9.8%, 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
Clorox shareholders are down 9.8% over twelve months (even including dividends), which isn't far from the market return of -9.3%. The silver lining is that longer term investors would have made a total return of 4% per year over half a decade. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 4 warning signs for Clorox (1 is a bit unpleasant!) that you should be aware of before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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