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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. Unfortunately, that's been the case for longer term Edison International (NYSE:EIX) shareholders, since the share price is down 23% in the last three years, falling well short of the market return of around 15%. And over the last year the share price fell 23%, so we doubt many shareholders are delighted. In the last ninety days we've seen the share price slide 29%. Of course, this share price action may well have been influenced by the 16% decline in the broader market, throughout the period.
After losing 7.1% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
During the unfortunate three years of share price decline, Edison International actually saw its earnings per share (EPS) improve by 19% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Or else the company was over-hyped in the past, and so its growth has disappointed.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. Edison International has maintained its top line over three years, so we doubt that has shareholders worried. So it might be worth looking at how revenue growth over time, in greater detail.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Edison International is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Edison International in this interactive graph of future profit estimates .
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Edison International the TSR over the last 3 years was -13%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!