Yahoo Finance The past five years for Healthcare Services Group (NASDAQ:HCSG) investors has not been profitable
We think intelligent long term investing is the way to go. But along the way some stocks are going to perform badly. For example the Healthcare Services Group, Inc. (NASDAQ:HCSG) share price dropped 57% over five years. That's not a lot of fun for true believers. And it's not just long term holders hurting, because the stock is down 37% in the last year. The falls have accelerated recently, with the share price down 32% in the last three months.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
View our latest analysis for Healthcare Services Group
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. 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.
While the share price declined over five years, Healthcare Services Group actually managed to increase EPS by an average of 1.0% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or possibly, the market was previously very optimistic, so the stock has disappointed, despite improving EPS.
Based on these numbers, we'd venture that the market may have been over-optimistic about forecast growth, half a decade ago. Looking to other metrics might better explain the share price change.
We note that the dividend has remained healthy, so that wouldn't really explain the share price drop. While it's not completely obvious why the share price is down, a closer look at the company's history might help explain it.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Healthcare Services Group is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Healthcare Services Group's TSR for the last 5 years was -51%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Investors in Healthcare Services Group had a tough year, with a total loss of 35% (including dividends), against a market gain of about 18%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 9% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Healthcare Services Group better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Healthcare Services Group .
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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.
