Yahoo Finance Pennon Group (LON:PNN) shareholders have earned a 9.7% return over the last year
The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Pennon Group Plc (LON:PNN) share price slid 26% over twelve months. That falls noticeably short of the market return of around 24%. On the other hand, the stock is actually up 7.2% over three years. Unfortunately the share price momentum is still quite negative, with prices down 8.1% in thirty days.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
View our latest analysis for Pennon Group
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Unfortunately Pennon Group reported an EPS drop of 8.0% for the last year. The share price decline of 26% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
This free interactive report on Pennon Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Pennon Group, it has a TSR of 9.7% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Pennon Group shareholders gained a total return of 9.7% during the year. But that return falls short of the market. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 10% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand Pennon Group better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Pennon Group (of which 1 is concerning!) you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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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