If you buy and hold a stock for many years, you'd hope to be making a profit. Better yet, you'd like to see the share price move up more than the market average. But Lindsay Corporation (NYSE:LNN) has fallen short of that second goal, with a share price rise of 14% over five years, which is below the market return. Looking at the last year alone, the stock is up 8.3%.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 five years of share price growth, Lindsay actually saw its EPS drop 6.9% per year.
Since the EPS are down strongly, it seems highly unlikely market participants are looking at EPS to value the company. The falling EPS doesn't correlate with the climbing share price, so it's worth taking a look at other metrics.
We doubt the modest 1.3% dividend yield is attracting many buyers to the stock. The revenue reduction of 3.8% per year is not a positive. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that Lindsay has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Lindsay
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. In the case of Lindsay, it has a TSR of 23% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Lindsay shareholders are up 9.8% for the year (even including dividends). But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 4.2% per year over five year. It is possible that returns will improve along with the business fundamentals. It's always interesting to track share price performance over the longer term. But to understand Lindsay better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Lindsay .
But note: Lindsay 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.
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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