Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. Spare a thought for those who held Hovnanian Enterprises, Inc. (NYSE:HOV) for five whole years - as the share price tanked 77%. Furthermore, it's down 36% in about a quarter. That's not much fun for holders. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
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 five years Hovnanian Enterprises's earnings per share dropped significantly, falling to a loss, with the share price also lower. At present it's hard to make valid comparisons between EPS and the share price. However, we can say we'd expect to see a falling share price in this scenario.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on Hovnanian Enterprises's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's nice to see that Hovnanian Enterprises shareholders have received a total shareholder return of 21% over the last year. That certainly beats the loss of about 26% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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 - Hovnanian Enterprises has 4 warning signs (and 2 which make us uncomfortable) we think you should know about.
But note: Hovnanian Enterprises may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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 firstname.lastname@example.org. 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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