Pulling back 3.7% this week, Dolby Laboratories' NYSE:DLB) five-year decline in earnings may be coming into investors focus

The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. But Dolby Laboratories, Inc. (NYSE:DLB) has fallen short of that second goal, with a share price rise of 17% over five years, which is below the market return. Zooming in, the stock is actually down 9.7% in the last year.

Since the long term performance has been good but there's been a recent pullback of 3.7%, let's check if the fundamentals match the share price.

Check out our latest analysis for Dolby Laboratories

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 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.

Dolby Laboratories' earnings per share are down 0.8% per year, despite strong share price performance over five years.

Since EPS is down a bit, and the share price is up, it's probably that the market previously had some concerns about the company, but the reality has been better than feared. Having said that, if the EPS falls continue we'd be surprised to see a sustained increase in share price.

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

Dive deeper into Dolby Laboratories' key metrics by checking this interactive graph of Dolby Laboratories's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Dolby Laboratories the TSR over the last 5 years was 24%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 33% in the last year, Dolby Laboratories shareholders lost 8.3% (even including dividends). 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. On the bright side, long term shareholders have made money, with a gain of 4% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

If you are like me, then you will not want to miss this free list of undervalued small caps 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 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.