The five-year loss for Deluxe (NYSE:DLX) shareholders likely driven by its shrinking earnings
For many, the main point of investing is to generate higher returns than the overall market. But every investor is virtually certain to have both over-performing and under-performing stocks. So we wouldn't blame long term Deluxe Corporation (NYSE:DLX) shareholders for doubting their decision to hold, with the stock down 48% over a half decade. On the other hand the share price has bounced 7.1% over the last week. But this could be related to the strong market, with stocks up around 3.3% in the same time.
The recent uptick of 7.1% could be a positive sign of things to come, so let's take a look at historical fundamentals.
View our latest analysis for Deluxe
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the five years over which the share price declined, Deluxe's earnings per share (EPS) dropped by 29% each year. The share price decline of 12% per year isn't as bad as the EPS decline. So the market may previously have expected a drop, or else it expects the situation will improve.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Deluxe's key metrics by checking this interactive graph of Deluxe'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. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Deluxe the TSR over the last 5 years was -35%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that Deluxe has rewarded shareholders with a total shareholder return of 26% 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 6% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Deluxe (at least 1 which is a bit concerning) , and understanding them should be part of your investment process.
Of course Deluxe 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 American 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.
