Standard Motor Products (NYSE:SMP) shareholders have endured a 31% loss from investing in the stock three years ago
Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Standard Motor Products, Inc. (NYSE:SMP) shareholders have had that experience, with the share price dropping 35% in three years, versus a market return of about 22%. And the ride hasn't got any smoother in recent times over the last year, with the price 32% lower in that time. More recently, the share price has dropped a further 12% in a month.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
View our latest analysis for Standard Motor Products
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 the unfortunate three years of share price decline, Standard Motor Products actually saw its earnings per share (EPS) improve by 8.6% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
Revenue is actually up 8.5% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Standard Motor Products further; while we may be missing something on this analysis, there might also be an opportunity.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Standard Motor Products
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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 Standard Motor Products, it has a TSR of -31% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that Standard Motor Products shareholders are down 30% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 21%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 3% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Standard Motor Products (at least 2 which are concerning) , and understanding them should be part of your investment process.
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.
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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