In This Article:
Halfords Group plc (LON:HFD) shareholders might be concerned after seeing the share price drop 12% in the last month. But the silver lining is the stock is up over five years. Unfortunately its return of 55% is below the market return of 73%. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 22% drop, in the last year.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During five years of share price growth, Halfords Group actually saw its EPS drop 11% per year.
This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
We note that the dividend has not increased, so that doesn't seem to explain the increase, either. It could be that the revenue growth of 9.2% per year is viewed as evidence that Halfords Group is growing. In that case, the company may be sacrificing current earnings per share to drive growth.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
If you are thinking of buying or selling Halfords Group stock, you should check out this FREE detailed report on its balance sheet.
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 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Halfords Group the TSR over the last 5 years was 85%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Investors in Halfords Group had a tough year, with a total loss of 18% (including dividends), against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 13%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 instance, we've identified 1 warning sign for Halfords Group that you should be aware of.