Investors can earn very close to the average market return by buying an index fund. But in any given year a good portion of stocks will fall short of that. One such example is Lennox International Inc. (NYSE:LII), which saw its share price fall 25% over a year, against a market decline of 22%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 6.1% in three years. Even worse, it's down 11% in about a month, which isn't fun at all. We do note, however, that the broader market is down 9.6% in that period, and this may have weighed on the share price.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
Check out our latest analysis for Lennox International
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
Unhappily, Lennox International had to report a 1.3% decline in EPS over the last year. This reduction in EPS is not as bad as the 25% share price fall. So it seems the market was too confident about the business, a year ago.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. This free interactive report on Lennox International's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
The total return of 24% received by Lennox International shareholders over the last year isn't far from the market return of -22%. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. It's always interesting to track share price performance over the longer term. But to understand Lennox International better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Lennox International (at least 1 which is potentially serious) , and understanding them should be part of your investment process.
Lennox International is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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