Stocks for the Long Run: Pinnacle West Capital 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. That way, "you'll be buying into a wonderful industry, which in effect is all of American industry," he says.

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, Pinnacle West Capital (NYSE: PNW  ) .

Pinnacle West Capital shares have underperformed the S&P 500 over the past quarter-century:

Source: S&P Capital IQ.

Since 1987, shares have returned an average of 7% 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. In Pinnacle West Capital, it'd be worth $8,700.

Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up 82% of Pinnacle West Capital's total returns. For the S&P, dividends account for 39% of total returns.

Now have a look at how Pinnacle West Capital earnings compare with S&P 500 earnings:

Source: S&P Capital IQ.

Some underperformance here, too, though that's not unexpected from a utility. Since 1995, Pinnacle West Capital's earnings per share have increased by an average of 1.2% a year, compared with 6% a year for the broader index.

What's that meant for valuations? Pinnacle West Capital has traded for an average of 14 times earnings since 1987 -- below the 24 times earnings for the broader S&P 500.

Through it all, shares have been relative disappointments over the past quarter-century.

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


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2100960, ~/Articles/ArticleHandler.aspx, 7/26/2014 7:49:22 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement