Yahoo Finance Despite lower earnings than five years ago, Emerson Electric (NYSE:EMR) investors are up 81% since then
The main point of investing for the long term is to make money. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the Emerson Electric Co. (NYSE:EMR) share price is up 59% in the last five years, that's less than the market return. However, more recent buyers should be happy with the increase of 26% over the last year.
Although Emerson Electric has shed US$1.9b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
See our latest analysis for Emerson Electric
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.
During five years of share price growth, Emerson Electric actually saw its EPS drop 1.1% per year.
So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.
We doubt the modest 2.0% dividend yield is attracting many buyers to the stock. The revenue reduction of 5.1% per year is not a positive. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Emerson Electric
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Emerson Electric the TSR over the last 5 years was 81%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's good to see that Emerson Electric has rewarded shareholders with a total shareholder return of 29% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 13% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Emerson Electric you should know about.
Emerson Electric 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 American 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.
