Did You Manage To Avoid Vector Group's (NYSE:VGR) 47% Share Price Drop?

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Vector Group Ltd. (NYSE:VGR) shareholders, since the share price is down 47% in the last three years, falling well short of the market return of around 46%. And the ride hasn't got any smoother in recent times over the last year, with the price 46% lower in that time. The silver lining is that the stock is up 2.0% in about a week.

See our latest analysis for Vector Group

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Although the share price is down over three years, Vector Group actually managed to grow EPS by 1.1% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed. It looks to us like the market was probably too optimistic around growth three years ago. But it's possible a look at other metrics will be enlightening.

We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. It's good to see that Vector Group has increased its revenue over the last three years. But it's not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.

You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Vector Group the TSR over the last 3 years was -30%, 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

Vector Group shareholders are down 39% for the year (even including dividends), but the market itself is up 2.7%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 1.8% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. If you would like to research Vector Group in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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 editorial-team@simplywallst.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.