Investing in stocks inevitably means buying into some companies that perform poorly. But the last three years have been particularly tough on longer term Michael Hill International Limited (ASX:MHJ) shareholders. Regrettably, they have had to cope with a 73% drop in the share price over that period. And over the last year the share price fell 33%, so we doubt many shareholders are delighted.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the three years that the share price fell, Michael Hill International's earnings per share (EPS) dropped by 1.0% each year. This reduction in EPS is slower than the 36% annual reduction in the share price. So it seems the market was too confident about the business, in the past. This increased caution is also evident in the rather low P/E ratio, which is sitting at 6.39.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Michael Hill International's key metrics by checking this interactive graph of Michael Hill International's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Michael Hill International's TSR for the last 3 years was -69%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
The last twelve months weren't great for Michael Hill International shares, which performed worse than the market, costing holders 29%, including dividends. The market shed around 1.8%, no doubt weighing on the stock price. However, the loss over the last year isn't as bad as the 19% per annum loss investors have suffered over the last three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 3 warning signs for Michael Hill International you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
This article by Simply Wall St is general in nature. 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.
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