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We believe investing is smart because history shows that stock markets go higher in the long term. But if when you choose to buy stocks, some of them will be below average performers. Over the last year the The Eastern Company (NASDAQ:EML) share price is up 26%, but that's less than the broader market return. However, the longer term returns haven't been so impressive, with the stock up just 15% in the last three years.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Eastern
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.
During the last year Eastern grew its earnings per share (EPS) by 57%. It's fair to say that the share price gain of 26% did not keep pace with the EPS growth. So it seems like the market has cooled on Eastern, despite the growth. Interesting.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. It might be well worthwhile taking a look at our free report on Eastern's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. We note that for Eastern the TSR over the last 1 year was 28%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Eastern's TSR for the year was broadly in line with the market average, at 28%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 1.0% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand Eastern better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Eastern you should be aware of.