For many, the main point of investing is to generate higher returns than the overall market. But every investor is virtually certain to have both over-performing and under-performing stocks. At this point some shareholders may be questioning their investment in Sally Beauty Holdings, Inc. (NYSE:SBH), since the last five years saw the share price fall 32%. The last week also saw the share price slip down another 7.6%.
Since Sally Beauty Holdings has shed US$71m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, Sally Beauty Holdings actually managed to increase EPS by an average of 0.9% 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). Alternatively, growth expectations may have been unreasonable in the past.
By glancing at these numbers, we'd posit that the the market had expectations of much higher growth, five years ago. Looking to other metrics might better explain the share price change.
In contrast to the share price, revenue has actually increased by 0.4% a year in the five year period. A more detailed examination of the revenue and earnings may or may not explain why the share price languishes; there could be an opportunity.
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 Sally Beauty 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 Sally Beauty Holdings
A Different Perspective
While the broader market gained around 11% in the last year, Sally Beauty Holdings shareholders lost 17%. 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 6% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Sally Beauty Holdings better, we need to consider many other factors. For instance, we've identified 1 warning sign for Sally Beauty Holdings that you should be aware of.
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 American 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.