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It hasn't been the best quarter for Shoe Zone plc (LON:SHOE) shareholders, since the share price has fallen 11% in that time. But in three years the returns have been great. In three years the stock price has launched 108% higher: a great result. To some, the recent share price pullback wouldn't be surprising after such a good run. The thing to consider is whether the underlying business is doing well enough to support the current price.
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
View our latest analysis for Shoe Zone
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 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).
During three years of share price growth, Shoe Zone moved from a loss to profitability. Given the importance of this milestone, it's not overly surprising that the share price has increased strongly.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how Shoe Zone 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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Shoe Zone the TSR over the last 3 years was 146%, 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
Investors in Shoe Zone had a tough year, with a total loss of 32% (including dividends), against a market gain of about 15%. 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 6%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. For instance, we've identified 4 warning signs for Shoe Zone (1 is a bit unpleasant) that you should be aware of.