While not a mind-blowing move, it is good to see that the Norsk Hydro ASA (OB:NHY) share price has gained 26% in the last three months. But that doesn't change the reality of under-performance over the last twelve months. After all, the share price is down 21% in the last year, significantly under-performing the market.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.
Norsk Hydro fell to a loss making position during the year. While this may prove temporary, we'd consider it a negative, so it doesn't surprise us that the stock price is down. We hope for shareholders' sake that the company becomes profitable again soon.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
Dive deeper into Norsk Hydro's key metrics by checking this interactive graph of Norsk Hydro'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. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Norsk Hydro's TSR for the last year was -18%, 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
Norsk Hydro shareholders are down 18% for the year (even including dividends) , but the market itself is up 1.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.6% 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. Importantly, we haven't analysed Norsk Hydro's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.
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 NO 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.