The five-year shareholder returns and company earnings persist lower as 3M (NYSE:MMM) stock falls a further 11% in past week

Leonardo Rasaki

In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But the main game is to find enough winners to more than offset the losers So we wouldn’t blame long term 3M Company (NYSE:MMM) shareholders for doubting their decision to hold, with the stock down 37% over a half decade. And we doubt long term believers are the only worried holders, since the stock price has declined 34% over the last twelve months. Shareholders have had an even rougher run lately, with the share price down 14% in the last 90 days.

Since 3M has shed US$9.2b from its value in the past 7 days, let’s see if the longer term decline has been driven by the business’ economics.

Before we look at the performance, you might like to know that our analysis indicates that MMM is potentially undervalued!

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Looking back five years, both 3M’s share price and EPS declined; the latter at a rate of 4.1% per year. This reduction in EPS is less than the 9% annual reduction in the share price. This implies that the market is more cautious about the business these days.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
NYSE:MMM Earnings Per Share Growth August 29th 2022

Dive deeper into 3M’s key metrics by checking this interactive graph of 3M’s earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for 3M the TSR over the last 5 years was -25%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market lost about 15% in the twelve months, 3M shareholders did even worse, losing 31% (even including dividends). 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. We realise that Baron Rothschild has said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that 3M is showing 3 warning signs in our investment analysis , you should know about…

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

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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