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You can receive the average market return by buying a low-cost index fund. But you can make better returns by buying undervalued shares. To wit, Kimball Electronics, Inc. (NASDAQ:KE) shares are up 43% in three years, besting the market return. The bad news is that the share price seems to lack positive momentum recently, since it has dropped 4.3% in the last year.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Kimball Electronics achieved compound earnings per share growth of 10% per year. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 13% average annual increase in the share price. This suggests that sentiment and expectations have not changed drastically. Rather, the share price has approximately tracked EPS growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It might be well worthwhile taking a look at our free report on Kimball Electronics's earnings, revenue and cash flow.
A Different Perspective
Over the last year, Kimball Electronics shareholders took a loss of 4.3%. In contrast the market gained about 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Investors are up over three years, booking 13% per year, much better than the more recent returns. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. Before forming an opinion on Kimball Electronics you might want to consider these 3 valuation metrics.
But note: Kimball Electronics 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 email@example.com. 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.