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Some Flexsteel Industries, Inc. (NASDAQ:FLXS) shareholders are probably rather concerned to see the share price fall 38% over the last three months. But that doesn't change the fact that the returns over the last five years have been very strong. In fact, the share price is 236% higher today. We think it's more important to dwell on the long term returns than the short term returns. The more important question is whether the stock is too cheap or too expensive today.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
See our latest analysis for Flexsteel Industries
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the last half decade, Flexsteel Industries became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Flexsteel Industries share price is up 83% in the last three years. Meanwhile, EPS is up 51% per year. This EPS growth is higher than the 22% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 10.21.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Flexsteel Industries has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Flexsteel Industries' financial health with this free report on its balance sheet.
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 Flexsteel Industries the TSR over the last 5 years was 274%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!