In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Donnelley Financial Solutions, Inc. (NYSE:DFIN) shareholders, since the share price is down 50% in the last three years, falling well short of the market return of around 49%. And more recent buyers are having a tough time too, with a drop of 26% in the last year. The falls have accelerated recently, with the share price down 20% in the last three months.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).
Donnelley Financial Solutions saw its EPS decline at a compound rate of 13% per year, over the last three years. The share price decline of 20% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 6.00.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Donnelley Financial Solutions has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
A Different Perspective
Over the last year, Donnelley Financial Solutions shareholders took a loss of 26%. In contrast the market gained about 15%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. The three-year loss of 20% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. Before forming an opinion on Donnelley Financial Solutions you might want to consider these 3 valuation metrics.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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.