When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For example, the Helen of Troy Limited (NASDAQ:HELE) share price has soared 114% in the last half decade. Most would be very happy with that. But it’s down 6.6% in the last week.
Since the long term performance has been good but there’s been a recent pullback of 6.6%, let’s check if the fundamentals match the share price.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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, Helen of Troy achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is slower than the share price growth of 16% per year, over the same period. So it’s fair to assume the market has a higher opinion of the business than it did five years ago. And that’s hardly shocking given the track record of growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.
A Different Perspective
While it’s certainly disappointing to see that Helen of Troy shares lost 8.2% throughout the year, that wasn’t as bad as the market loss of 9.4%. Longer term investors wouldn’t be so upset, since they would have made 16%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It’s always interesting to track share price performance over the longer term. But to understand Helen of Troy better, we need to consider many other factors. Even so, be aware that Helen of Troy is showing 2 warning signs in our investment analysis , and 1 of those can’t be ignored…
We will like Helen of Troy better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.