FirstEnergy’s (NYSE: FE) year-over-year shareholder returns were, but earnings growth was even better

There is no doubt that investing in the stock market is a really brilliant way to build wealth. But not all the stocks you buy will perform as well as the entire market. Unfortunately for the shareholders, while the First Energy Corp. The stock price (NYSE: FE) rose 13% last year, which is below market performance. However, long-term returns have not been so impressive, with the stock only rising 2.8% in the past three years.

After a strong gain last week, it’s worth seeing if long-term returns have been boosted by improving fundamentals.

See our latest review for FirstEnergy

In his essay Graham-and-Doddsville super-investors Warren Buffett described how stock prices don’t always rationally reflect a company’s value. A flawed but reasonable way to gauge how sentiment is changing around a company is to compare earnings per share (EPS) with the stock price.

FirstEnergy has been able to increase its EPS by 95% over the past twelve months. This EPS growth is significantly higher than the 13% increase in the share price. As a result, it appears that the market is not as excited about FirstEnergy as it used to be. It could be an opportunity.

You can see how EPS has changed over time in the image below (click on the graph to see the exact values).

NYSE: FE Growth in earnings per share October 24, 2021

We are happy to report that the CEO is paid more modestly than most CEOs of companies with similar capitalization. It’s always worth keeping an eye on CEO compensation, but a bigger question is whether the company will increase profits over the years. Before buying or selling a stock, we always recommend a careful review of historical growth trends, available here.

What about dividends?

In addition to measuring stock price performance, investors should also consider the total shareholder return (TSR). 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. As it turns out, FirstEnergy’s TSR for the past year was 19%, which exceeds the share price return mentioned above. This is largely the result of his dividend payments!

A different perspective

FirstEnergy shareholders achieved a total return of 19% during the year. But it was below the market average. On the plus side, it’s still a payoff, and it’s actually better than the 7% average return over half a decade. This suggests that the business could improve over time. While it is worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example – FirstEnergy has 2 warning signs (and 1 which is a bit rude) we think you should be aware of.

If you like to buy stocks alongside management then you might love this free list of companies. (Hint: insiders bought them).

Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on US stock exchanges.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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