Did Business Growth Power Global Water Resources' (NASDAQ:GWRS) Share Price Gain of 101%?
The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But in contrast you can make much more than 100% if the company does well. For instance the Global Water Resources, Inc. (NASDAQ:GWRS) share price is 101% higher than it was three years ago. How nice for those who held the stock! Also pleasing for shareholders was the 29% gain in the last three months.
See our latest analysis for Global Water Resources
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 three years of share price growth, Global Water Resources actually saw its earnings per share (EPS) drop 19% per year.
Thus, it seems unlikely that the market is focussed on EPS growth at the moment. 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.
The modest 1.7% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 5.5% per year is viewed as evidence that Global Water Resources is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. So it makes a lot of sense to check out what analysts think Global Water Resources will earn in the future (free profit forecasts).
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Global Water Resources the TSR over the last 3 years was 117%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the market return was 40% in the last year, Global Water Resources returned 36% to shareholders. Most would be happy with a gain, and it helps that the year's return is actually better than the average return of 30% over the last three years, implying that the company is doing better recently. It's good to see the uptick, although the business fundamentals will need to move in the right direction if the company is to sustain the rise. It's always interesting to track share price performance over the longer term. But to understand Global Water Resources better, we need to consider many other factors. Even so, be aware that Global Water Resources is showing 5 warning signs in our investment analysis , and 1 of those shouldn't be ignored...
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.
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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
