Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term P&F Industries, Inc. (NASDAQ:PFIN) shareholders have had that experience, with the share price dropping 13% in three years, versus a market return of about 51%.
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.
P&F Industries became profitable within the last five years. We would usually expect to see the share price rise as a result. So it’s worth looking at other metrics to try to understand the share price move.
The company has kept revenue pretty healthy over the last three years, so we doubt that explains the falling share price. We’re not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
This free interactive report on P&F Industries’s balance sheet strength is a great place to start, if you want to investigate the stock further.
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. We note that for P&F Industries the TSR over the last 3 years was -6.8%, 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
P&F Industries shareholders gained a total return of 4.9% during the year. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 2.9% per year over five year. It is possible that returns will improve along with the business fundamentals. Is P&F Industries cheap compared to other companies? These 3 valuation measures might help you decide.
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 US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.