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It hasn't been the best quarter for Hovnanian Enterprises, Inc. (NYSE:HOV) shareholders, since the share price has fallen 27% in that time. But that doesn't change the fact that the returns over the last half decade have been spectacular. Indeed, the share price is up a whopping 800% in that time. So it might be that some shareholders are taking profits after good performance. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price. Anyone who held for that rewarding ride would probably be keen to talk about it.
While the stock has fallen 12% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the five years of share price growth, Hovnanian Enterprises moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Hovnanian Enterprises has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Hovnanian Enterprises will grow revenue in the future.
A Different Perspective
Hovnanian Enterprises shareholders are down 35% for the year, but the market itself is up 4.8%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 55% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Even so, be aware that Hovnanian Enterprises is showing 3 warning signs in our investment analysis , and 2 of those are a bit unpleasant...
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