Herman Miller, Inc. (NASDAQ:MLHR) shareholders might be concerned after seeing the share price drop 16% in the last month. But the silver lining is the stock is up over five years. In that time, it is up 42%, which isn't bad, but is below the market return of 75%.
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 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).
Over half a decade, Herman Miller managed to grow its earnings per share at 19% a year. The EPS growth is more impressive than the yearly share price gain of 7.3% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 11.15 also suggests market apprehension.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Herman Miller has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, Herman Miller's TSR for the last 5 years was 58%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Herman Miller shareholders are up 23% for the year (even including dividends) . Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 9.5% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. Before spending more time on Herman Miller it might be wise to click here to see if insiders have been buying or selling shares.
Of course Herman Miller 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.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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