Most people feel a little frustrated if a stock they own goes down in price. But often it is not a reflection of the fundamental business performance. So while the A. O. Smith Corporation (NYSE:AOS) share price is down 21% in the last year, the total return to shareholders (which includes dividends) was -20%. And that total return actually beats the market decline of 22%. On the bright side, the stock is actually up 6.7% in the last three years. Even worse, it's down 14% 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 9.6% in the same time period.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for A. O. Smith

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Even though the A. O. Smith share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.

The divergence between the EPS and the share price is quite notable, during the year. But we might find some different metrics explain the share price movements better.

A. O. Smith's revenue is actually up 20% over the last year. Since we can't easily explain the share price movement based on these metrics, it might be worth considering how market sentiment has changed towards the stock.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

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 report showing analyst forecasts should help you form a view on A. O. Smith

A Different Perspective

While it's certainly disappointing to see that A. O. Smith shares lost 20% throughout the year, that wasn't as bad as the market loss of 22%. Given the total loss of 3% per year over five years, it seems returns have deteriorated in the last twelve months. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of A. O. Smith by clicking this link.

A. O. Smith is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.