Abercrombie & Fitch (NYSE:ANF) sheds 3.5% this week, as yearly returns fall more in line with earnings growth

Abercrombie & Fitch Co. (NYSE:ANF) shareholders might be concerned after seeing the share price drop 26% in the last quarter. But over five years returns have been remarkably great. To be precise, the stock price is 667% higher than it was five years ago, a wonderful performance by any measure. So it might be that some shareholders are taking profits after good performance. But the real question is whether the business fundamentals can improve over the long term. We love happy stories like this one. The company should be really proud of that performance!

Since the long term performance has been good but there's been a recent pullback of 3.5%, let's check if the fundamentals match the share price.

See our latest analysis for Abercrombie & Fitch

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).

During five years of share price growth, Abercrombie & Fitch achieved compound earnings per share (EPS) growth of 67% per year. The EPS growth is more impressive than the yearly share price gain of 50% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 9.85 also suggests market apprehension.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Abercrombie & Fitch has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Abercrombie & Fitch's financial health with this free report on its balance sheet.

What About The Total Shareholder Return (TSR)?

Investors should note that there's a difference between Abercrombie & Fitch's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Abercrombie & Fitch's TSR of 678% for the 5 years exceeded its share price return, because it has paid dividends.

A Different Perspective

While the broader market gained around 26% in the last year, Abercrombie & Fitch shareholders lost 10%. 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. Longer term investors wouldn't be so upset, since they would have made 51%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Abercrombie & Fitch better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Abercrombie & Fitch you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.