HEXPOL (STO:HPOL B) jumps 9.3% this week, though earnings growth is still tracking behind three-year shareholder returns

By
Simply Wall St
Published
March 15, 2022
OM:HPOL B
Source: Shutterstock

It hasn't been the best quarter for HEXPOL AB (publ) (STO:HPOL B) shareholders, since the share price has fallen 15% in that time. But at least the stock is up over the last three years. In that time, it is up 23%, which isn't bad, but not amazing either.

Since the stock has added kr2.8b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for HEXPOL

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

HEXPOL was able to grow its EPS at 13% per year over three years, sending the share price higher. This EPS growth is higher than the 7% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
OM:HPOL B Earnings Per Share Growth March 15th 2022

We know that HEXPOL has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for HEXPOL the TSR over the last 3 years was 33%, 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 HEXPOL shareholders have received a total shareholder return of 2.9% over the last year. That's including the dividend. Having said that, the five-year TSR of 4% a year, is even better. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with HEXPOL , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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

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