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Hello Group Inc. (NASDAQ:MOMO) shareholders should be happy to see the share price up 18% in the last quarter. But that doesn't change the fact that the returns over the last half decade have been disappointing. In that time the share price has delivered a rude shock to holders, who find themselves down 79% after a long stretch. So we're not so sure if the recent bounce should be celebrated. However, in the best case scenario (far from fait accompli), this improved performance might be sustained.
So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for Hello Group
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 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 the five years over which the share price declined, Hello Group's earnings per share (EPS) dropped by 5.2% each year. Readers should note that the share price has fallen faster than the EPS, at a rate of 27% per year, over the period. This implies that the market was previously too optimistic about the stock. The less favorable sentiment is reflected in its current P/E ratio of 5.80.
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 Hello Group, it has a TSR of -70% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
While the broader market gained around 27% in the last year, Hello Group shareholders lost 19% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 11% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand Hello Group better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Hello Group , and understanding them should be part of your investment process.