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 (NYS: 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.

The article Stocks for the Long Run: Pinnacle West Capital vs. the S&P 500 originally appeared on Fool.com.

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.

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