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It hasn't been the best quarter for H.B. Fuller Company (NYSE:FUL) shareholders, since the share price has fallen 11% in that time. On the bright side the share price is up over the last half decade. In that time, it is up 66%, which isn't bad, but is below the market return of 107%. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 32% drop, in the last year.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
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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 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.
During five years of share price growth, H.B. Fuller actually saw its EPS drop 3.8% per year.
So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.
We doubt the modest 1.7% dividend yield is attracting many buyers to the stock. On the other hand, H.B. Fuller's revenue is growing nicely, at a compound rate of 5.4% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. You can see what analysts are predicting for H.B. Fuller in this interactive graph of future profit estimates.
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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of H.B. Fuller, it has a TSR of 76% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.