Zurn Elkay Water Solutions (NYSE:ZWS) shareholders have earned a 3.0% CAGR over the last three years

For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term Zurn Elkay Water Solutions Corporation (NYSE:ZWS) shareholders have had that experience, with the share price dropping 49% in three years, versus a market return of about 18%.

Now let’s have a look at the company’s fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

See our latest analysis for Zurn Elkay Water Solutions

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 three years of share price decline, Zurn Elkay Water Solutions actually saw its earnings per share (EPS) improve by 44% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.

With a rather small yield of just 1.0% we doubt that the stock’s share price is based on its dividend. Revenue is actually up 33% over the three years, so the share price drop doesn’t seem to hinge on revenue, either. It’s probably worth investigating Zurn Elkay Water Solutions further; while we may be missing something on this analysis, there might also be an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Zurn Elkay Water Solutions has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Zurn Elkay Water Solutions stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Zurn Elkay Water Solutions’ TSR for the last 3 years was 9.4%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

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A Different Perspective

Zurn Elkay Water Solutions shareholders are up 11% for the year (even including dividends). But that return falls short of the market. On the bright side, the longer term returns (running at about 21% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. If you would like to research Zurn Elkay Water Solutions in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.

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.