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Did Dolby Laboratories' (NYSE:DLB) Share Price Deserve to Gain 49%?

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Dolby Laboratories, Inc. (NYSE:DLB) shareholders might be concerned after seeing the share price drop 19% in the last quarter. While that's not great, the returns over five years have been decent. The share price is up 49%, which is better than the market return of 45%.

Check out our latest analysis for Dolby Laboratories

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Over half a decade, Dolby Laboratories managed to grow its earnings per share at 0.5% a year. This EPS growth is slower than the share price growth of 8.2% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

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

NYSE:DLB Past and Future Earnings May 5th 2020
NYSE:DLB Past and Future Earnings May 5th 2020

Dive deeper into Dolby Laboratories's key metrics by checking this interactive graph of Dolby Laboratories'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 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. In the case of Dolby Laboratories, it has a TSR of 57% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We regret to report that Dolby Laboratories shareholders are down 8.8% for the year (even including dividends) . Unfortunately, that's worse than the broader market decline of 1.7%. 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 9.4%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you would like to research Dolby Laboratories in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

We will like Dolby Laboratories better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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

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.

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. Thank you for reading.