Yahoo Finance Provident Financial Holdings (NASDAQ:PROV) investors are sitting on a loss of 25% if they invested three years ago
In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. Unfortunately, that's been the case for longer term Provident Financial Holdings, Inc. (NASDAQ:PROV) shareholders, since the share price is down 32% in the last three years, falling well short of the market return of around 33%. Furthermore, it's down 12% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 17% in the same timeframe.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they've been consistent with returns.
Check out our latest analysis for Provident Financial Holdings
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 unfortunate three years of share price decline, Provident Financial Holdings actually saw its earnings per share (EPS) improve by 27% 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 else the company was over-hyped in the past, and so its growth has disappointed.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
We think that the revenue decline over three years, at a rate of 14% per year, probably had some shareholders looking to sell. After all, if revenue keeps shrinking, it may be difficult to find earnings growth in the future.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that Provident Financial Holdings has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Provident Financial Holdings
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. We note that for Provident Financial Holdings the TSR over the last 3 years was -25%, 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
While it's never nice to take a loss, Provident Financial Holdings shareholders can take comfort that , including dividends,their trailing twelve month loss of 13% wasn't as bad as the market loss of around 18%. Unfortunately, last year's performance may indicate unresolved challenges, given that it's worse than the annualised loss of 2% over the last half decade. While some investors do well specializing in buying companies that are struggling (but nonetheless undervalued), don't forget that Buffett said that 'turnarounds seldom turn'. 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 example, we've discovered 1 warning sign for Provident Financial Holdings that you should be aware of before investing here.
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 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.
