It's easy to feel disappointed if you buy a stock that goes down. But often it is not a reflection of the fundamental business performance. So while the Mueller Water Products, Inc. (NYSE:MWA) share price is down 20% in the last year, the total return to shareholders (which includes dividends) was -18%. And that total return actually beats the market decline of 19%. On the other hand, the stock is actually up 4.7% over three years. On the other hand, we note it's up 9.8% in about a month. But this could be related to good market conditions, with stocks up around 5.9% during the period.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 unfortunate twelve months during which the Mueller Water Products share price fell, it actually saw its earnings per share (EPS) improve by 9.5%. It's quite possible that growth expectations may have been unreasonable in the past.
It's fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.
Mueller Water Products managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Mueller Water Products is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
A Different Perspective
Mueller Water Products shareholders are down 18% over twelve months (even including dividends), which isn't far from the market return of -19%. The silver lining is that longer term investors would have made a total return of 0.7% per year over half a decade. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. It's always interesting to track share price performance over the longer term. But to understand Mueller Water Products better, we need to consider many other factors. For example, we've discovered 2 warning signs for Mueller Water Products (1 doesn't sit too well with us!) that you should be aware of before investing here.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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.
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