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Investors in Donaldson Company (NYSE:DCI) have unfortunately lost 15% over the last year

Most people feel a little frustrated if a stock they own goes down in price. But in the short term the market is a voting machine, and the share price movements may not reflect the underlying business performance. The Donaldson Company, Inc. (NYSE:DCI) is down 16% over a year, but the total shareholder return is -15% once you include the dividend. That's better than the market which declined 22% over the last year. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 3.5% in three years.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

Check out our latest analysis for Donaldson Company

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the unfortunate twelve months during which the Donaldson Company share price fell, it actually saw its earnings per share (EPS) improve by 19%. It could be that the share price was previously over-hyped.

The divergence between the EPS and the share price is quite notable, during the year. But we might find some different metrics explain the share price movements better.

Given the yield is quite low, at 1.9%, we doubt the dividend can shed much light on the share price. Donaldson Company's revenue is actually up 16% over the last year. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

earnings-and-revenue-growth
earnings-and-revenue-growth

We know that Donaldson Company has improved its bottom line lately, but what does the future have in store? So we recommend checking out this free report showing consensus forecasts

A Different Perspective

Although it hurts that Donaldson Company returned a loss of 15% in the last twelve months, the broader market was actually worse, returning a loss of 22%. Longer term investors wouldn't be so upset, since they would have made 3%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Donaldson Company has 1 warning sign we think you should be aware of.

Of course Donaldson Company may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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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