Yahoo Finance Fortune Brands Home & Security's (NYSE:FBHS) investors will be pleased with their splendid 102% return over the last three years
By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. Just take a look at Fortune Brands Home & Security, Inc. (NYSE:FBHS), which is up 94%, over three years, soundly beating the market return of 59% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 5.5% , including dividends .
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Fortune Brands Home & Security
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
Fortune Brands Home & Security was able to grow its EPS at 19% per year over three years, sending the share price higher. In comparison, the 25% per year gain in the share price outpaces the EPS growth. So it's fair to assume the market has a higher opinion of the business than it did three years ago. It's not unusual to see the market 're-rate' a stock, after a few years of growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Fortune Brands Home & Security has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Fortune Brands Home & Security will grow revenue in the future.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Fortune Brands Home & Security's TSR for the last 3 years was 102%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Fortune Brands Home & Security shareholders gained a total return of 5.5% during the year. Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 12% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand Fortune Brands Home & Security better, we need to consider many other factors. Take risks, for example - Fortune Brands Home & Security has 1 warning sign we think you should be aware of.
But note: Fortune Brands Home & Security may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.
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