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Many investors define successful investing as beating the market average over the long term. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Hillenbrand, Inc. (NYSE:HI) shareholders, since the share price is down 42% in the last three years, falling well short of the market return of around 24%. The more recent news is of little comfort, with the share price down 34% in a year. Shareholders have had an even rougher run lately, with the share price down 38% in the last 90 days.
If the past week is anything to go by, investor sentiment for Hillenbrand isn't positive, so let's see if there's a mismatch between fundamentals and the share price.
Check out our latest analysis for Hillenbrand
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).
Hillenbrand saw its share price decline over the three years in which its EPS also dropped, falling to a loss. This was, in part, due to extraordinary items impacting earnings. Due to the loss, it's not easy to use EPS as a reliable guide to the business. But it's safe to say we'd generally expect the share price to be lower as a result!
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Hillenbrand's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Hillenbrand the TSR over the last 3 years was -38%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Investors in Hillenbrand had a tough year, with a total loss of 32% (including dividends), against a market gain of about 36%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.1% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Hillenbrand , and understanding them should be part of your investment process.