Yahoo Finance The five-year shareholder returns and company earnings persist lower as Valhi (NYSE:VHI) stock falls a further 6.5% in past week
The main aim of stock picking is to find the market-beating stocks. But the main game is to find enough winners to more than offset the losers So we wouldn't blame long term Valhi, Inc. (NYSE:VHI) shareholders for doubting their decision to hold, with the stock down 17% over a half decade. The share price has dropped 44% in three months.
Since Valhi has shed US$50m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
View our latest analysis for Valhi
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
Looking back five years, both Valhi's share price and EPS declined; the latter at a rate of 0.2% per year. Readers should note that the share price has fallen faster than the EPS, at a rate of 4% per year, over the period. This implies that the market was previously too optimistic about the stock. The low P/E ratio of 4.39 further reflects this reticence.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Valhi's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Valhi the TSR over the last 5 years was -6.6%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Valhi has rewarded shareholders with a total shareholder return of 7.5% in the last twelve months. That's including the dividend. There's no doubt those recent returns are much better than the TSR loss of 1.3% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. 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. To that end, you should be aware of the 1 warning sign we've spotted with Valhi .
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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