Despite shrinking by kr5.0b in the past week, Norsk Hydro (OB:NHY) shareholders are still up 175% over 3 years

Norsk Hydro ASA (OB:NHY) shareholders might be concerned after seeing the share price drop 12% in the last quarter. But that doesn't change the fact that the returns over the last three years have been very strong. Indeed, the share price is up a very strong 116% in that time. After a run like that some may not be surprised to see prices moderate. Only time will tell if there is still too much optimism currently reflected in the share price.

Since the long term performance has been good but there's been a recent pullback of 3.9%, let's check if the fundamentals match the share price.

See our latest analysis for Norsk Hydro

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 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 three years of share price growth, Norsk Hydro moved from a loss to profitability. Given the importance of this milestone, it's not overly surprising that the share price has increased strongly.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Norsk Hydro has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Norsk Hydro, it has a TSR of 175% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

The total return of 3.4% received by Norsk Hydro shareholders over the last year isn't far from the market return of -3.4%. Longer term investors wouldn't be so upset, since they would have made 11%, each year, over five years. If the stock price has been impacted by changing sentiment, rather than deteriorating business conditions, it could spell opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 2 warning signs for Norsk Hydro you should be aware of.

Of course Norsk Hydro may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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