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If You Had Bought Valhi's (NYSE:VHI) Shares Three Years Ago You Would Be Down 82%

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Simply Wall St
·3 min read
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It is doubtless a positive to see that the Valhi, Inc. (NYSE:VHI) share price has gained some 35% in the last three months. But that is meagre solace in the face of the shocking decline over three years. In that time the share price has melted like a snowball in the desert, down 82%. So it's about time shareholders saw some gains. Of course the real question is whether the business can sustain a turnaround.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

View our latest analysis for Valhi

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 three years that the share price fell, Valhi's earnings per share (EPS) dropped by 42% each year. The 43% average annual share price decline is remarkably close to the EPS decline. So it seems like sentiment towards the stock hasn't changed all that much over time. In this case, it seems that the EPS is guiding the share price.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
earnings-per-share-growth

Dive deeper into Valhi's key metrics by checking this interactive graph of Valhi's earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 22% in the last year, Valhi 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Valhi has 3 warning signs (and 1 which can't be ignored) we think you should know about.

Of course Valhi 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 US exchanges.

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. 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.

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