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Should Norfolk Southern (NYSE:NSC) Be Disappointed With Their 89% Profit?

Simply Wall St

Norfolk Southern Corporation (NYSE:NSC) shareholders might be concerned after seeing the share price drop 15% in the last quarter. But that doesn't change the fact that the returns over the last three years have been pleasing. In the last three years the share price is up, 89%: better than the market.

See our latest analysis for Norfolk Southern

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. 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.

Norfolk Southern was able to grow its EPS at 24% per year over three years, sending the share price higher. This EPS growth is remarkably close to the 24% average annual increase in the share price. This observation indicates that the market's attitude to the business hasn't changed all that much. Rather, the share price has approximately tracked EPS growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

NYSE:NSC Past and Future Earnings, August 19th 2019

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on Norfolk Southern'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). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Norfolk Southern the TSR over the last 3 years was 101%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Norfolk Southern shareholders are up 1.3% for the year (even including dividends). Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 13% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Norfolk Southern by clicking this link.

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.

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 editorial-team@simplywallst.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.