Did Changing Sentiment Drive Hostelworld Group's (LON:HSW) Share Price Down A Painful 79%?
It's nice to see the Hostelworld Group plc (LON:HSW) share price up 24% in a week. But the last three years have seen a terrible decline. In that time the share price has melted like a snowball in the desert, down 79%. So it sure is nice to see a bit of an improvement. Of course the real question is whether the business can sustain a turnaround.
View our latest analysis for Hostelworld Group
There is no denying that markets are sometimes efficient, but prices do not always reflect 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 unfortunate three years of share price decline, Hostelworld Group actually saw its earnings per share (EPS) improve by 120% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
With revenue flat over three years, it seems unlikely that the share price is reflecting the top line. We're not entirely sure why the share price is dropped, but it does seem likely investors have become less optimistic about the business.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
We know that Hostelworld Group 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.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Hostelworld Group's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Hostelworld Group's TSR of was a loss of 77% for the 3 years. That wasn't as bad as its share price return, because it has paid dividends.
A Different Perspective
Hostelworld Group shareholders are down 65% for the year, falling short of the market return. Meanwhile, the broader market slid about 8.0%, likely weighing on the stock. The three-year loss of 38% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 4 warning signs for Hostelworld Group (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
Of course Hostelworld Group 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 GB exchanges.
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