Stocks for the Long Run: Nordson vs. the S&P 500

Investing isn't easy. Even Warren Buffett counsels that most investors should invest in a low-cost index like the S&P 500. He says that way "you'll be buying into a wonderful industry, which in effect is all of American industry."

But there are, of course, companies whose long-term fortunes differ substantially from the index. In this series, we look at how individual stocks have performed against the broad S&P 500.

Step on up, Nordson (Nasdaq: NDSN  ) .                                             

Nordson shares have roughly matched the S&P 500 over the last quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 9.8% a year, compared with 9.7% a year for the S&P (both include dividends). One thousand dollars invested in the S&P in 1987 would be worth $19,200 today, and, naturally, about the same in Nordson.                                                                                           

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up about a third of Nordson's total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Nordson earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Some outperformance, mostly from recent years. Since 1995, Nordson earnings per share have increased by 9.4% per year, compared with 6% a year for the broader index.

What's that meant for valuations? Nordson has traded for an average of 22 times earnings since 1987 -- a bit below the 24 times earnings of the broader S&P 500.

Through it all, shares have been pretty average performers over the last quarter-century.  

Of course, the important question is whether that will continue. That's where you come in. Our CAPS community currently ranks Nordson with a three-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add Nordson to My Watchlist.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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