While not a mind-blowing move, it is good to see that the Valeo SA (EPA:FR) share price has gained 22% in the last three months. But that doesn't help the fact that the three year return is less impressive. Truth be told the share price declined 40% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Valeo saw its EPS decline at a compound rate of 32% per year, over the last three years. This fall in the EPS is worse than the 16% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of Valeo, it has a TSR of -34% for the last 3 years. 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
Valeo shareholders gained a total return of 3.6% during the year. But that return falls short of the market. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 5.7% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Importantly, we haven't analysed Valeo's dividend history. This free visual report on its dividends is a must-read if you're thinking of buying.
But note: Valeo 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 FR 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 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. Thank you for reading.