Unfortunately, investing is risky – companies can and do go bankrupt. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Natural Health Trends Corp. (NASDAQ:NHTC) share price had more than doubled in just one year – up 134%. On top of that, the share price is up 46% in about a quarter. Unfortunately the longer term returns are not so good, with the stock falling 61% in the last three years.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Natural Health Trends went from making a loss to reporting a profit, in the last year.
When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.
We haven’t seen Natural Health Trends increase dividend payments yet, so the yield probably hasn’t helped drive the share higher. It saw it’s revenue decline by 20% over twelve months. It’s fair to say we’re a little surprised to see the share price up, and that makes us cautious.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Natural Health Trends’ TSR for the last year was 165%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It’s good to see that Natural Health Trends has rewarded shareholders with a total shareholder return of 165% in the last twelve months. That’s including the dividend. There’s no doubt those recent returns are much better than the TSR loss of 11% per year over five years. This makes us a little wary, but the business might have turned around its fortunes. 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. Take risks, for example – Natural Health Trends has 5 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
Of course Natural Health Trends may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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. 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.
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