In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Acme United Corporation (NYSEMKT:ACU) shareholders have had that experience, with the share price dropping 29% in three years, versus a market return of about 28%. Furthermore, it's down 16% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 7.4% in the same timeframe.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Acme United saw its EPS decline at a compound rate of 0.03% per year, over the last three years. This reduction in EPS is slower than the 11% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. This increased caution is also evident in the rather low P/E ratio, which is sitting at 11.21.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Acme United's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Acme United the TSR over the last 3 years was -25%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Acme United shareholders are up 4.9% for the year (even including dividends) . But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 4.4% over half a decade 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 Acme United better, we need to consider many other factors. For example, we've discovered 3 warning signs for Acme United (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
We will like Acme United better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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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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. Thank you for reading.