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Hargreaves Lansdown (LON:HL.) earnings and shareholder returns have been trending downwards for the last three years, but the stock pops 12% this past week

Hargreaves Lansdown plc (LON:HL.) shareholders should be happy to see the share price up 17% in the last month. But that cannot eclipse the less-than-impressive returns over the last three years. Truth be told the share price declined 52% in three years and that return, Dear Reader, falls short of what you could have got from passive investing with an index fund.

While the last three years has been tough for Hargreaves Lansdown shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

See our latest analysis for Hargreaves Lansdown

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the three years that the share price fell, Hargreaves Lansdown's earnings per share (EPS) dropped by 4.3% each year. This reduction in EPS is slower than the 22% annual reduction in the share price. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

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

Dive deeper into Hargreaves Lansdown's key metrics by checking this interactive graph of Hargreaves Lansdown's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Hargreaves Lansdown's TSR for the last 3 years was -48%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We regret to report that Hargreaves Lansdown shareholders are down 32% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 2.7%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. 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. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Hargreaves Lansdown , and understanding them should be part of your investment process.

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 GB exchanges.

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

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.

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