Stock Analysis

Did Howden Joinery Group's (LON:HWDN) Share Price Deserve to Gain 54%?

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LSE:HWDN
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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. Just take a look at Howden Joinery Group Plc (LON:HWDN), which is up 54%, over three years, soundly beating the market decline of 8.5% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 3.4% in the last year.

Check out our latest analysis for Howden Joinery Group

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Over the last three years, Howden Joinery Group failed to grow earnings per share, which fell 7.2% (annualized).

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.

It could be that the revenue growth of 3.5% per year is viewed as evidence that Howden Joinery Group is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
LSE:HWDN Earnings and Revenue Growth January 12th 2021

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Howden Joinery Group in this interactive graph of future profit estimates.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Howden Joinery Group's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Its history of dividend payouts mean that Howden Joinery Group's TSR of 61% over the last 3 years is better than the share price return.

A Different Perspective

It's good to see that Howden Joinery Group has rewarded shareholders with a total shareholder return of 3.4% in the last twelve months. However, the TSR over five years, coming in at 9% per year, is even more impressive. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.

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 GB exchanges.

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