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Lovisa Holdings Limited (ASX:LOV) shareholders have seen the share price descend 14% over the month. But in stark contrast, the returns over the last half decade have impressed. Indeed, the share price is up an impressive 126% in that time. We think it's more important to dwell on the long term returns than the short term returns. Ultimately business performance will determine whether the stock price continues the positive long term trend.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
Check out our latest analysis for Lovisa Holdings
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Lovisa Holdings achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is reasonably close to the 18% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Indeed, it would appear the share price is reacting to the EPS.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how Lovisa Holdings has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
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. As it happens, Lovisa Holdings' TSR for the last 5 years was 160%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's good to see that Lovisa Holdings has rewarded shareholders with a total shareholder return of 57% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 21% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Lovisa Holdings you should know about.