There's no doubt that investing in the stock market is a truly brilliant way to build wealth. But if you choose that path, you're going to buy some stocks that fall short of the market. Unfortunately for shareholders, while the Provident Financial Holdings, Inc. (NASDAQ:PROV) share price is up 30% in the last year, that falls short of the market return. In contrast, the longer term returns are negative, since the share price is 8.3% lower than it was three years ago.
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 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).
Over the last twelve months, Provident Financial Holdings actually shrank its EPS by 3.3%.
We don't think that the decline in earnings per share is a good measure of the business over the last twelve months. It makes sense to check some of the other fundamental data for an explanation of the share price rise.
Unfortunately Provident Financial Holdings' fell 21% over twelve months. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
We know that Provident Financial Holdings has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Provident Financial Holdings' financial health with this free report on its balance sheet.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Provident Financial Holdings' TSR for the last year was 36%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Provident Financial Holdings provided a TSR of 36% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 2% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. 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. To that end, you should be aware of the 1 warning sign we've spotted with Provident Financial Holdings .
If you are like me, then you will 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 US exchanges.
When trading Provident Financial Holdings or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
This article by Simply Wall St is general in nature. 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.