NorthWestern (NASDAQ:NWE) earnings and shareholder returns have trended down over the past three years, but the stock is up 3.5% over the past week

To justify the hassle of stock picking, it pays to beat the returns of a market index fund. But when you try your hand at stock picking, your risk is lower than the market. We regret having to report this on a long-term basis Northwest Society (NASDAQ:NWE) shareholders have had that experience, with the stock price falling 21% in three years compared to a market return of about 31%. Worse, it’s down 8.3% in about a month, which is no fun at all.

The recent 3.5% gain could be a positive sign going forward, so we’re leaning heavily on historical fundamentals.

Check out our latest analysis for NorthWestern

To quote Buffett, “Ships will sail around the world, but the Flat Earth Society will thrive. There will continue to be large discrepancies between price and value in the market…” One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS ) consider.

During the three years that the stock price fell, NorthWestern’s earnings per share (EPS) fell 7.0% each year. That change in EPS is pretty close to the average annual 7% decline in the stock price. So it appears that despite the disappointment, investor expectations for the company remain fairly stable. In this case, the EPS seems to guide the stock price.

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

NasdaqGS: NWE Earnings Per Share Growth, 24 June 2022

It’s probably worth noting that similarly sized companies pay the CEO less than the median. It’s always worth keeping an eye on CEO salaries, but a more important question is whether the company will turn a profit over the years. This free NorthWestern’s interactive report on earnings, earnings, and cash flow is a great place to start if you want to investigate the stock further.

What about dividends?

It’s important to consider total shareholder returns as well as stock price returns for a particular stock. The TSR is a return calculation that takes into account the value of cash dividends (assuming dividends received have been reinvested) and the calculated value of capital increases and spin-offs at a discount. So for companies that pay a generous dividend, TSR is often much higher than the stock price return. Coincidentally, NorthWestern’s TSR over the past 3 years has been -11%, which exceeds the aforementioned stock price return. This is mainly due to the dividend payments!

A different perspective

It’s certainly disappointing to see NorthWestern stocks down 2.5% over the year, but that wasn’t as bad as the market’s 19% drop. Of course, long-term returns are far more important, and the good news is that the stock has returned 2% each year for five years. The company may only face short-term problems, but shareholders should keep a close eye on fundamentals. While it’s worth considering the various effects that market conditions can have on the stock price, there are other factors that are even more important. For example, we have identified 3 warning signs for NorthWestern (1 is significant) that you should be aware of.

We’ll like NorthWestern better when we see some big insider buys. While we wait, take a look at this free List of growing companies with significant recent insider purchases.

Please note that the market returns reported in this article reflect the market-weighted average returns of stocks currently traded on US exchanges.

This Simply Wall St article is of a general nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to offer you long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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