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PPHE Hotel Group Limited (LON:PPH) shareholders should be happy to see the share price up 12% in the last month. But that doesn't help the fact that the three year return is less impressive. In fact, the share price is down 14% in the last three years, falling well short of the market return.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 five years of share price growth, PPHE Hotel Group moved from a loss to profitability. We would usually expect to see the share price rise as a result. So it's worth looking at other metrics to try to understand the share price move.
We note that, in three years, revenue has actually grown at a 29% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating PPHE Hotel Group further; while we may be missing something on this analysis, there might also be an opportunity.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that PPHE Hotel Group has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on PPHE Hotel Group's balance sheet strength is a great place to start, if you want to investigate the stock further.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of PPHE Hotel Group, it has a TSR of -8.2% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market gained around 5.6% in the last year, PPHE Hotel Group shareholders lost 7.5% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 4%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand PPHE Hotel Group better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with PPHE Hotel Group (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.