When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Better yet, you'd like to see the share price move up more than the market average. But Mueller Water Products, Inc. (NYSE:MWA) has fallen short of that second goal, with a share price rise of 13% over five years, which is below the market return. Meanwhile, the last twelve months saw the share price rise 1.1%.
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Mueller Water Products's earnings per share are down 6.6% per year, despite strong share price performance over five years. The strong decline in earnings per share suggests the market isn't using EPS to judge the company. Given that EPS is down, but the share price is up, it seems clear the market is focussed on other aspects of the business, at the moment.
The modest 1.9% dividend yield is unlikely to be propping up the share price. It is not great to see that revenue has dropped by 7.7% per year over five years. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Mueller Water Products is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Mueller Water Products stock, you should check out this free report showing analyst consensus estimates for future profits.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Mueller Water Products, it has a TSR of 20% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Mueller Water Products shareholders gained a total return of 3.0% during the year. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 3.7% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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.