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Unfortunately, investing is risky - companies can and do go bankrupt. On the other hand, if you find a high quality business to buy (at the right price) you can more than double your money! Take, for example Valhi, Inc. (NYSE:VHI). Its share price is already up an impressive 202% in the last twelve months. It's also good to see the share price up 67% over the last quarter. Looking back further, the stock price is 49% higher than it was three years ago.
Since the long term performance has been good but there's been a recent pullback of 5.3%, let's check if the fundamentals match the share price.
See our latest analysis for Valhi
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Valhi went from making a loss to reporting a profit, in the last year.
The company was close to break-even last year, so earnings per share of US$0.87 isn't particularly stand out. But judging by the share price, the market is very pleased with the milestone of reaching profitability. Inflection points like this can be a great time to take a closer look at a company.
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?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Valhi's TSR for the last 1 year was 208%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that Valhi has rewarded shareholders with a total shareholder return of 208% in the last twelve months. That's including the dividend. That's better than the annualised return of 11% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 2 warning signs for Valhi (1 shouldn't be ignored!) that you should be aware of before investing here.