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Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by The Gorman-Rupp Company (NYSE:GRC) shareholders over the last year, as the share price declined 17%. That contrasts poorly with the market decline of 2.4%. At least the damage isn't so bad if you look at the last three years, since the stock is down 7.4% in that time. Even worse, it's down 16% in about a month, which isn't fun at all. However, we note the price may have been impacted by the broader market, which is down 13% in the same time period.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
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. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the unfortunate twelve months during which the Gorman-Rupp share price fell, it actually saw its earnings per share (EPS) improve by 15%. It's quite possible that growth expectations may have been unreasonable in the past.
The divergence between the EPS and the share price is quite notable, during the year. So it's well worth checking out some other metrics, too.
Revenue was pretty flat on last year, which isn't too bad. But the share price might be lower because the market expected a meaningful improvement, and got none.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
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. You can see what analysts are predicting for Gorman-Rupp in this interactive graph of future profit estimates .
A Different Perspective
We regret to report that Gorman-Rupp shareholders are down 16% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 2.4%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Gorman-Rupp better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Gorman-Rupp you should be aware of.