Yahoo Finance While shareholders of Black Hills (NYSE:BKH) are in the red over the last year, underlying earnings have actually grown
These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But in any given year a good portion of stocks will fall short of that. For example, that's what happened with Black Hills Corporation (NYSE:BKH) over the last year - it's share price is down 19% versus a market decline of 15%. On the other hand, the stock is actually up 5.9% over three years. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days.
While the last year has been tough for Black Hills shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.
See our latest analysis for Black Hills
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the unfortunate twelve months during which the Black Hills share price fell, it actually saw its earnings per share (EPS) improve by 6.4%. It's quite possible that growth expectations may have been unreasonable in the past.
It's fair to say that the share price does not seem to be reflecting the EPS growth. But we might find some different metrics explain the share price movements better.
Black Hills' dividend seems healthy to us, so we doubt that the yield is a concern for the market. The revenue trend doesn't seem to explain why the share price is down. Of course, it could simply be that it simply fell short of the market consensus expectations.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
This free interactive report on Black Hills' balance sheet strength is a great place to start, if you want to investigate the stock further.
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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Black Hills' TSR for the last 1 year was -16%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
We regret to report that Black Hills shareholders are down 16% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 15%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Black Hills (of which 1 is a bit concerning!) you should know about.
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 American exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
