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Did Phibro Animal Health's (NASDAQ:PAHC) Share Price Deserve to Gain 45%?

Simply Wall St

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Phibro Animal Health Corporation (NASDAQ:PAHC) shareholders might be concerned after seeing the share price drop 10% in the last quarter. But at least the stock is up over the last three years. Arguably you'd have been better off buying an index fund, because the gain of 45% in three years isn't amazing.

Check out our latest analysis for Phibro Animal Health

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over the last three years, Phibro Animal Health failed to grow earnings per share, which fell 5.4% (annualized). Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

Languishing at just 1.7%, we doubt the dividend is doing much to prop up the share price. It could be that the revenue growth of 4.4% per year is viewed as evidence that Phibro Animal Health is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

NasdaqGM:PAHC Income Statement, June 12th 2019

We know that Phibro Animal Health has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Phibro Animal Health stock, you should check out this free report showing analyst profit forecasts.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Phibro Animal Health, it has a TSR of 51% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 3.1% in the last year, Phibro Animal Health shareholders lost 39% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 7.7% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Is Phibro Animal Health cheap compared to other companies? These 3 valuation measures might help you decide.

We will like Phibro Animal Health 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.

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.