While Donnelley Financial Solutions, Inc. (NYSE:DFIN) shareholders are probably generally happy, the stock hasn’t had particularly good run recently, with the share price falling 16% in the last quarter. But that doesn’t change the fact that the returns over the last three years have been very strong. The share price marched upwards over that time, and is now 123% higher than it was. So the recent fall in the share price should be viewed in that context. Only time will tell if there is still too much optimism currently reflected in the share price.
Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholders returns.
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).
Donnelley Financial Solutions was able to grow its EPS at 31% per year over three years, sending the share price higher. This EPS growth is remarkably close to the 31% average annual increase in the share price. That suggests that the market sentiment around the company hasn’t changed much over that time. Au contraire, the share price change has arguably mimicked the EPS growth.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Donnelley Financial Solutions has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
While it’s never nice to take a loss, Donnelley Financial Solutions shareholders can take comfort that their trailing twelve month loss of 11% wasn’t as bad as the market loss of around 20%. Longer term investors wouldn’t be so upset, since they would have made 4%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It’s always interesting to track share price performance over the longer term. But to understand Donnelley Financial Solutions better, we need to consider many other factors. Even so, be aware that Donnelley Financial Solutions is showing 3 warning signs in our investment analysis , and 1 of those is significant…
We will like Donnelley Financial Solutions better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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. 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.