Shareholders in Encompass Health (NYSE:EHC) are in the red if they invested a year ago
It's normal to be annoyed when stock you own has a declining share price. But in the short term the market is a voting machine, and the share price movements may not reflect the underlying business performance. So while the Encompass Health Corporation (NYSE:EHC) share price is down 24% in the last year, the total return to shareholders (which includes dividends) was -3.4%. That's better than the market which declined 13% over the last year. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 16% in three years. Even worse, it's down 13% in about a month, which isn't fun at all.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
Check out our latest analysis for Encompass Health
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
Unhappily, Encompass Health had to report a 14% decline in EPS over the last year. The share price decline of 24% is actually more than the EPS drop. This suggests the EPS fall has made some shareholders are more nervous about the business.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Encompass Health's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Encompass Health, it has a TSR of -3.4% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While it's never nice to take a loss, Encompass Health shareholders can take comfort that , including dividends,their trailing twelve month loss of 3.4% wasn't as bad as the market loss of around 13%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 5% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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. Even so, be aware that Encompass Health is showing 1 warning sign in our investment analysis , you should know about...
Encompass Health is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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