Stock Analysis

If You Had Bought Michael Hill International's (ASX:MHJ) Shares Three Years Ago You Would Be Down 55%

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ASX:MHJ
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It is doubtless a positive to see that the Michael Hill International Limited (ASX:MHJ) share price has gained some 64% in the last three months. But that cannot eclipse the less-than-impressive returns over the last three years. After all, the share price is down 55% in the last three years, significantly under-performing the market.

See our latest analysis for Michael Hill International

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.

During the three years that the share price fell, Michael Hill International's earnings per share (EPS) dropped by 59% each year. This fall in the EPS is worse than the 23% compound annual share price fall. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines. This positive sentiment is also reflected in the generous P/E ratio of 66.56.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
ASX:MHJ Earnings Per Share Growth November 23rd 2020

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Michael Hill International's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Dividends have been really beneficial for Michael Hill International shareholders, and that cash payout explains why its total shareholder loss of 48%, over the last 3 years, isn't as bad as the share price return.

A Different Perspective

The last twelve months weren't great for Michael Hill International shares, which cost holders 20%, while the market was up about 2.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 14% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. It's always interesting to track share price performance over the longer term. But to understand Michael Hill International better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with Michael Hill International .

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

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