While Global Water Resources, Inc. (NASDAQ:GWRS) shareholders are probably generally happy, the stock hasn’t had particularly good run recently, with the share price falling 19% in the last quarter. But at least the stock is up over the last five years. However we are not very impressed because the share price is only up 31%, less than the market return of 59%.
Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
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. 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.
During the last half decade, Global Water Resources became profitable. That would generally be considered a positive, so we’d expect the share price to be up. Since the company was unprofitable five years ago, but not three years ago, it’s worth taking a look at the returns in the last three years, too. Indeed, the Global Water Resources share price has gained 26% in three years. Meanwhile, EPS is up 8.3% per year. This EPS growth is remarkably close to the 8% average annual increase in the share price (over three years, again). So one might argue that investor sentiment towards the stock hss not changed much over time. There’s a strong correlation between the share price and EPS.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It’s good to see that there was some significant insider buying in the last three months. That’s a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Global Water Resources, it has a TSR of 48% for the last 5 years. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Global Water Resources shareholders are down 22% over twelve months (even including dividends), which isn’t far from the market return of -21%. The silver lining is that longer term investors would have made a total return of 8% per year over half a decade. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. It’s always interesting to track share price performance over the longer term. But to understand Global Water Resources better, we need to consider many other factors. Even so, be aware that Global Water Resources is showing 4 warning signs in our investment analysis , and 2 of those are concerning…
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.