Should Meritor (NYSE:MTOR) Be Disappointed With Their 68% Profit?

Meritor, Inc. (NYSE:MTOR) shareholders might be concerned after seeing the share price drop 24% in the last month. But don't let that distract from the very nice return generated over three years. In the last three years the share price is up, 68%: better than the market.

See our latest analysis for Meritor

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During three years of share price growth, Meritor achieved compound earnings per share growth of 55% per year. This EPS growth is higher than the 19% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 5.41 also reflects the negative sentiment around the stock.

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

NYSE:MTOR Past and Future Earnings, August 19th 2019

We know that Meritor has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Meritor's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

Meritor shareholders are down 17% for the year, but the market itself is up 1.7%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 5.3%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. If you would like to research Meritor in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

But note: Meritor may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.