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Did Changing Sentiment Drive H & M Hennes & Mauritz's (STO:HM B) Share Price Down By 49%?

Simply Wall St

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Ideally, your overall portfolio should beat the market average. But even the best stock picker will only win with some selections. At this point some shareholders may be questioning their investment in H & M Hennes & Mauritz AB (publ) (STO:HM B), since the last five years saw the share price fall 49%. Unhappily, the share price slid 4.5% in the last week.

See our latest analysis for H & M Hennes & Mauritz

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 five years over which the share price declined, H & M Hennes & Mauritz's earnings per share (EPS) dropped by 7.0% each year. This reduction in EPS is less than the 13% annual reduction in the share price. This implies that the market was previously too optimistic about the stock.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

OM:HM B Past and Future Earnings, June 24th 2019

Dive deeper into H & M Hennes & Mauritz's key metrics by checking this interactive graph of H & M Hennes & Mauritz's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. We note that for H & M Hennes & Mauritz the TSR over the last 5 years was -38%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that H & M Hennes & Mauritz shareholders have received a total shareholder return of 13% over one year. And that does include the dividend. Notably the five-year annualised TSR loss of 9.1% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. Importantly, we haven't analysed H & M Hennes & Mauritz's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.

Of course H & M Hennes & Mauritz may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on SE exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.