Investing in Global Water Resources (NASDAQ: GWRS) five years ago would have given you a 204% gain
When you buy a stock, there is always a chance that it will drop by 100%. But on the bright side, if you buy shares of a high quality company for the right price, you can earn well over 100%. A good example is World Water Resources, Inc. (NASDAQ: GWRS) which has seen its stock price rise 166% over five years. Another good news is that the share price has climbed 17% in thirty days.
Now, it’s worth looking at the fundamentals of the business as well, as this will help us determine whether the long-term return to shareholders matches the performance of the underlying business.
To quote Buffett, “Ships will sail around the world but the Flat Earth Society will thrive. There will continue to be wide spreads between price and value in the market … ‘An imperfect but reasonable way to assess how sentiment around a company has changed is to compare earnings per share (EPS) with the course of action.
Over the five years of share price growth, Global Water Resources has seen its EPS fall by 35% per year.
Essentially, it doesn’t seem likely that investors will focus on BPA. Since the change in EPS does not appear to correlate with the change in the share price, it’s worth taking a look at other metrics.
We doubt the modest 1.4% dividend yield will attract many buyers to the stock. In contrast, revenue growth of 6.3% per year is probably seen as proof that the world’s water resources are growing, which is really positive. In this case, the company can sacrifice the current earnings per share to drive growth.
The graph below illustrates the evolution of earnings and income over time (reveal the exact values by clicking on the image).
NasdaqGM: GWRS Profits and Revenue Growth September 4, 2021
It’s good to see that there have been some significant insider buys over the past three months. It’s positive. On the other hand, we believe that revenue and profit trends are much more meaningful measures of the business. You can see what analysts are predicting for the world’s water resources 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. While the share price return reflects only the change in the share price, the TSR includes the value of dividends (assuming they have been reinvested) and the benefit of any capital increase or spin- off updated. So, for companies that pay a generous dividend, the TSR is often much higher than the return on the share price. In the case of Global Water Resources, it has a TSR of 204% for the past 5 years. This exceeds the return on its share price that we mentioned earlier. This is largely the result of his dividend payments!
A different perspective
It is good to see that Global Water Resources has rewarded its shareholders with a total shareholder return of 85% over the past twelve months. And that includes the dividend. As the 1-year TSR is better than the 5-year TSR (the latter standing at 25% per year), it seems that the performance of the stock has improved in recent times. At the best of times, this can portend real business momentum, meaning that now may be a good time to dig deep. I find it very interesting to look at the long-term share price as an indicator of company performance. But to really get an overview, we have to take other information into account as well. For example, we have identified 3 warning signs for the world’s water resources (1 is a bit rude) that you should be aware of.
Global Water Resources isn’t the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider buys, might be just the ticket.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on US stock exchanges.
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