U.S. Markets closed

Volatility 101: Should Edison International (NYSE:EIX) Shares Have Dropped 12%?

Simply Wall St

For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Edison International (NYSE:EIX) shareholders have had that experience, with the share price dropping 12% in three years, versus a market return of about 48%. It's down 1.9% in the last seven days.

See our latest analysis for Edison International

There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

Over the three years that the share price declined, Edison International's earnings per share (EPS) dropped significantly, falling to a loss. This was, in part, due to extraordinary items impacting earnings. Due to the loss, it's not easy to use EPS as a reliable guide to the business. But it's safe to say we'd generally expect the share price to be lower as a result!

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

NYSE:EIX Past and Future Earnings, April 12th 2019

Dive deeper into Edison International's key metrics by checking this interactive graph of Edison International's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Edison International's TSR for the last 3 years was -2.7%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Edison International provided a TSR of 2.6% over the last twelve months. But that return falls short of the market. On the bright side, the longer term returns (running at about 5.3% 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. Importantly, we haven't analysed Edison International's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.

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.

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.