Australia markets close in 5 hours 14 minutes
  • ALL ORDS

    7,780.30
    +21.00 (+0.27%)
     
  • ASX 200

    7,468.70
    +25.30 (+0.34%)
     
  • AUD/USD

    0.7514
    +0.0010 (+0.13%)
     
  • OIL

    84.25
    -0.40 (-0.47%)
     
  • GOLD

    1,794.20
    +0.80 (+0.04%)
     
  • BTC-AUD

    80,389.68
    -3,932.02 (-4.66%)
     
  • CMC Crypto 200

    1,498.92
    -6.23 (-0.41%)
     
  • AUD/EUR

    0.6477
    +0.0011 (+0.17%)
     
  • AUD/NZD

    1.0480
    +0.0007 (+0.07%)
     
  • NZX 50

    13,011.66
    -63.75 (-0.49%)
     
  • NASDAQ

    15,559.49
    +45.29 (+0.29%)
     
  • FTSE

    7,277.62
    +54.80 (+0.76%)
     
  • Dow Jones

    35,756.88
    +15.73 (+0.04%)
     
  • DAX

    15,757.06
    +157.83 (+1.01%)
     
  • Hang Seng

    26,038.27
    -93.76 (-0.36%)
     
  • NIKKEI 225

    29,106.01
    +505.60 (+1.77%)
     

Recent 14% pullback isn't enough to hurt long-term Hargreaves Services (LON:HSP) shareholders, they're still up 183% over 5 years

  • Oops!
    Something went wrong.
    Please try again later.
·3-min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.

The Hargreaves Services Plc (LON:HSP) share price has had a bad week, falling 14%. But that scarcely detracts from the really solid long term returns generated by the company over five years. Indeed, the share price is up an impressive 149% in that time. To some, the recent pullback wouldn't be surprising after such a fast rise. Only time will tell if there is still too much optimism currently reflected in the share price.

In light of the stock dropping 14% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

View our latest analysis for Hargreaves Services

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the five years of share price growth, Hargreaves Services moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Hargreaves Services share price is up 37% in the last three years. During the same period, EPS grew by 137% each year. This EPS growth is higher than the 11% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 9.40.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
earnings-per-share-growth

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Hargreaves Services' earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. We note that for Hargreaves Services the TSR over the last 5 years was 183%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Hargreaves Services shareholders have received a total shareholder return of 141% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 23%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Hargreaves Services (of which 1 can't be ignored!) you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting