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The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Houlihan Lokey, Inc. (NYSE:HLI) share price has soared 102% in the last three years. That sort of return is as solid as granite. In the last week shares have slid back 1.4%.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
During three years of share price growth, Houlihan Lokey achieved compound earnings per share growth of 26% per year. Notably, the 26% average annual share price gain matches up nicely with the EPS growth rate. That suggests that the market sentiment around the company hasn't changed much over that time. Au contraire, the share price change has arguably mimicked the EPS growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It might be well worthwhile taking a look at our free report on Houlihan Lokey's earnings, revenue and cash flow.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Houlihan Lokey, it has a TSR of 117% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Houlihan Lokey shareholders are up 4.7% for the year (even including dividends). It's always nice to make money but this return falls short of the market return which was about 8.1% for the year. But the (superior) three-year TSR of 29% per year is some consolation. We prefer focus on longer term returns, as they are usually a more meaningful indication of the underlying business. Before forming an opinion on Houlihan Lokey you might want to consider these 3 valuation metrics.
If you are like me, then you will not want to miss this free list of growing companies that insiders are 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 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. Thank you for reading.