By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, Hilltop Holdings Inc. (NYSE:HTH) shareholders have seen the share price rise 60% over three years, well in excess of the market return (29%, not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 10% in the last year , including dividends .
Since the stock has added US$81m to its market cap in the past week alone, let’s see if underlying performance has been driving long-term returns.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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.
During the three years of share price growth, Hilltop Holdings actually saw its earnings per share (EPS) drop 9.9% per year.
Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it’s worth considering other metrics as well.
The modest 2.0% dividend yield is unlikely to be propping up the share price. The revenue drop of 10.0% is as underwhelming as some politicians. The only thing that’s clear is there is low correlation between Hilltop Holdings’ share price and its historic fundamental data. Further research may be required!
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Take a more thorough look at Hilltop Holdings’ financial health with this free report on its balance sheet.
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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Hilltop Holdings’ TSR for the last 3 years was 68%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s nice to see that Hilltop Holdings shareholders have received a total shareholder return of 10% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 8%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 4 warning signs for Hilltop Holdings (of which 1 is concerning!) you should know about.
We will like Hilltop Holdings better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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.
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