Stock Analysis

If You Had Bought Michael Hill International's (ASX:MHJ) Shares Three Years Ago You Would Be Down 36%

  •  Updated
ASX:MHJ
Source: Shutterstock

It is doubtless a positive to see that the Michael Hill International Limited (ASX:MHJ) share price has gained some 32% in the last three months. But that doesn't help the fact that the three year return is less impressive. After all, the share price is down 36% in the last three years, significantly under-performing the market.

Check out our latest analysis for Michael Hill International

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the three years that the share price fell, Michael Hill International's earnings per share (EPS) dropped by 25% each year. In comparison the 14% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
ASX:MHJ Earnings Per Share Growth March 1st 2021

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Michael Hill International's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Michael Hill International the TSR over the last 3 years was -26%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Michael Hill International shareholders have gained 25% (in total) over the last year. That includes the value of the dividend. That certainly beats the loss of about 8% per year over three years. It could well be that the business has turned around -- or else regained the confidence of investors. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Michael Hill International , and understanding them should be part of your investment process.

Michael Hill International is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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

If you decide to trade Michael Hill International, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted


Valuation is complex, but we're helping make it simple.

Find out whether Michael Hill International is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis