Fortive Corporation (NYSE:FTV) shareholders should be happy to see the share price up 16% in the last month. But that doesn't change the fact that the returns over the last year have been less than pleasing. The cold reality is that the stock has dropped 26% 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.
Unhappily, Fortive had to report a 24% decline in EPS over the last year. This proportional reduction in earnings per share isn't far from the 26% decrease in the share price. So it seems that the market sentiment has not changed much, despite the weak results. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Dive deeper into Fortive's key metrics by checking this interactive graph of Fortive's earnings, revenue and cash flow.
A Different Perspective
Fortive shareholders are down 26% for the year (even including dividends) , but the broader market is up 1.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Fortunately the longer term story is brighter, with total returns averaging about 0.8% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Fortive is showing 3 warning signs in our investment analysis , you should know about...
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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