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While not a mind-blowing move, it is good to see that the Innophos Holdings, Inc. (NASDAQ:IPHS) share price has gained 25% in the last three months. But over the last half decade, the stock has not performed well. In fact, the share price is down 48%, which falls well short of the return you could get by buying an index fund.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Looking back five years, both Innophos Holdings’s share price and EPS declined; the latter at a rate of 4.0% per year. This reduction in EPS is less than the 12% annual reduction in the share price. This implies that the market is more cautious about the business these days.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that Innophos Holdings has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Innophos Holdings will grow revenue in the future.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Innophos Holdings’s TSR for the last 5 years was -34%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market gained around 6.3% in the last year, Innophos Holdings shareholders lost 19% (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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 8.1% over the last half decade. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality businesses. Before forming an opinion on Innophos Holdings you might want to consider the cold hard cash it pays as a dividend. This free chart tracks its dividend over time.
Of course Innophos Holdings 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.
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.