LVMH Moët Hennessy - Louis Vuitton Société Européenne (EPA:MC) investors are sitting on a loss of 20% if they invested three years ago

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, you risk returning less than the market. Unfortunately, that's been the case for longer term LVMH Moët Hennessy - Louis Vuitton, Société Européenne (EPA:MC) shareholders, since the share price is down 25% in the last three years, falling well short of the market return of around 26%.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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).

During the three years that the share price fell, LVMH Moët Hennessy - Louis Vuitton Société Européenne's earnings per share (EPS) dropped by 5.7% each year. This reduction in EPS is slower than the 9% annual reduction in the share price. So it seems the market was too confident about the business, in the past.

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

Dive deeper into LVMH Moët Hennessy - Louis Vuitton Société Européenne's key metrics by checking this interactive graph of LVMH Moët Hennessy - Louis Vuitton Société Européenne's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. We note that for LVMH Moët Hennessy - Louis Vuitton Société Européenne the TSR over the last 3 years was -20%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While the broader market gained around 7.0% in the last year, LVMH Moët Hennessy - Louis Vuitton Société Européenne shareholders lost 17% (even including dividends). 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. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand LVMH Moët Hennessy - Louis Vuitton Société Européenne better, we need to consider many other factors. For example, we've discovered 1 warning sign for LVMH Moët Hennessy - Louis Vuitton Société Européenne that you should be aware of before investing here.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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