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We think intelligent long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. To wit, the HSS Hire Group plc (LON:HSS) share price managed to fall 70% over five long years. That's not a lot of fun for true believers. The falls have accelerated recently, with the share price down 25% in the last three months.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for HSS Hire Group
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 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.
During five years of share price growth, HSS Hire Group moved from a loss to profitability. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.
The steady dividend doesn't really explain why the share price is down. It's not immediately clear to us why the stock price is down but further research might provide some answers.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that HSS Hire Group has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for HSS Hire Group the TSR over the last 5 years was -55%, 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
While the broader market gained around 0.2% in the last year, HSS Hire Group shareholders lost 16% (even including dividends). However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. Even so, be aware that HSS Hire Group is showing 4 warning signs in our investment analysis , and 1 of those can't be ignored...