EOG Resources, Inc. (NYSE:EOG) shareholders should be happy to see the share price up 11% in the last month. But in truth the last year hasn't been good for the share price. The cold reality is that the stock has dropped 33% in one year, under-performing the market.
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. 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.
Unfortunately EOG Resources reported an EPS drop of 40% for the last year. The share price fall of 33% isn't as bad as the reduction in earnings per share. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how EOG Resources has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at EOG Resources's financial health with this free report on its balance sheet.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between EOG Resources's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Its history of dividend payouts mean that EOG Resources's TSR, which was a 32% drop over the last year, was not as bad as the share price return.
A Different Perspective
Investors in EOG Resources had a tough year, with a total loss of 32% (including dividends) , against a market gain of about 18%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5.7% 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. If you would like to research EOG Resources in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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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