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, J.C. Penney (NYSE:JCP).
J.C. Penney shares have underperformed the S&P 500 over the past quarter-century. By quite a bit, too:
Since 1987, shares have returned an average of 4.8% 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. In J.C. Penney, it'd be worth $4,400.
Dividends accounted for a lot of those gains. Compounded since 1987, dividends have made up essentially all of J.C. Penney's total returns (the company doesn't currently pay a dividend). For the S&P, dividends account for 39% of total returns.
Now have a look at how J.C. Penney earnings compare with S&P 500 earnings:
Deep underperformance here, too. Since 1995, J.C. Penney's earnings per share have declined, compared with 6% a year growth for the broader index.
What's that meant for valuations? J.C. Penney has traded for an average of 17 times earnings since 1987 -- below the 24 times earnings for the broader S&P 500.
Through it all, shares have been 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 J.C. Penney with a one-star rating (out of five). Care to disagree? Leave your thoughts in the comment section below, or add J.C. Penney to My Watchlist.
Fool contributor Morgan Housel and The Motley Fool have no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
More from The Motley Fool
Why J.C. Penney Stock Growth is No Sure Thing
The company has reported some good news, but it's just a start.
Some Struggling Retailers Had a Happy Holiday Season
A few chains have reported on their November and December sales, and the news is good.
Can J.C. Penney Stock Keep Going After Last Week's 14% Pop?
Strong retail industry sales trends help push the department-store chain higher, even though J.C. Penney itself is sticking to its earlier reduced fiscal-year guidance.