Those who invested in Essential Utilities (NYSE: WTRG) five years ago are up 79%
When you buy and hold a stock for the long term, you absolutely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. Unfortunately for the shareholders, while the Essential Utilities, Inc. The stock price (NYSE: WTRG) has risen 59% over the past five years, less than the market performance. Over the past twelve months, the share price has risen by a very respectable 12%.
So let’s take a look and see if the long term performance of the business has been in line with the progress of the underlying business.
See our latest review for essential utilities
In his essay Graham-and-Doddsville super-investors Warren Buffett described how stock prices don’t always rationally reflect a company’s value. By comparing earnings per share (EPS) and changes in the share price over time, we can get a sense of how investors’ attitudes towards a company have changed over time.
In five years, Essential Utilities has managed to increase its earnings per share by 8.0% per year. This EPS growth is reasonably close to the 10% average annual increase in the share price. Therefore, one could conclude that sentiment towards stocks has not changed much. Indeed, it would appear that the stock price is reacting to BPA.
You can see below how the EPS has evolved over time (find out the exact values by clicking on the image).
We know that Essential Utilities has improved its results lately, but will it increase its revenues? You could check that out free report showing analysts’ earnings forecasts.
What about dividends?
In addition to measuring stock price performance, investors should also consider the total shareholder return (TSR). TSR is a yield calculation that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of any discounted capital increase and spinoff. So, for companies that pay a generous dividend, the TSR is often much higher than the return on the share price. In the case of Essential Utilities, it has a TSR of 79% for the past 5 years. This exceeds the return on its share price that we mentioned earlier. This is largely the result of his dividend payments!
A different perspective
The shareholders of Essential Utilities are up 15% over the year (including dividends). Unfortunately, this does not match the performance of the market. On the plus side, it’s still a payoff, and it’s actually better than the 12% average return over half a decade. It is possible that returns will improve with company fundamentals. I find it very interesting to look at the long-term share price as an indicator of company performance. But to really understand better, we have to take other information into account as well. Concrete example: we have spotted 2 warning signs for essential utilities you need to be aware of it, and one of them is potentially serious.
If you would rather consult with another company – one with potentially superior finances – then don’t miss this free list of companies that have proven they can increase their profits.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on the US stock exchanges.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
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