Ashland (NYSE:ASH) pulls back 3.1% this week, but still delivers shareholders 3.9% CAGR over 5 years

The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Ashland Inc. (NYSE:ASH) share price is up 12% in the last five years, that's less than the market return. Zooming in, the stock is up a respectable 6.0% in the last year.

Although Ashland has shed US$133m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for Ashland

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the last half decade, Ashland became profitable. That would generally be considered a positive, so we'd hope to see the share price to rise. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. In fact, the Ashland stock price is 9.1% lower in the last three years. In the same period, EPS is up 42% per year. It would appear there's a real mismatch between the increasing EPS and the share price, which has declined -3.1% a year for three years.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It is of course excellent to see how Ashland has grown profits over the years, but the future is more important for shareholders. This free interactive report on Ashland's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Ashland the TSR over the last 5 years was 21%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Ashland provided a TSR of 7.9% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 4% over half a decade It is possible that returns will improve along with the business fundamentals. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Ashland , and understanding them should be part of your investment process.

But note: Ashland may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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