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Volatility 101: Should Methode Electronics (NYSE:MEI) Shares Have Dropped 27%?

Simply Wall St

While it may not be enough for some shareholders, we think it is good to see the Methode Electronics, Inc. (NYSE:MEI) share price up 24% in a single quarter. But that doesn’t change the reality of under-performance over the last twelve months. In fact, the price has declined 27% in a year, falling short of the returns you could get by investing in an index fund.

Check out our latest analysis for Methode Electronics

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 way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).

Unfortunately Methode Electronics reported an EPS drop of 45% for the last year. This fall in the EPS is significantly worse than the 27% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn’t more difficult.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

NYSE:MEI Past and Future Earnings, March 8th 2019

It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Dive deeper into the earnings by checking this interactive graph of Methode Electronics’s earnings, revenue and cash flow.

What about the Total Shareholder Return (TSR)?

We’ve already covered Methode Electronics’s share price action, but we should also mention its total shareholder return (TSR). 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. Its history of dividend payouts mean that Methode Electronics’s TSR, which was a 26% drop over the last year, was not as bad as the share price return.

A Different Perspective

While the broader market gained around 0.9% in the last year, Methode Electronics shareholders lost 26% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn’t be so upset, since they would have made 0.2%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares – and the price they paid.

Methode Electronics is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.