It might be of some concern to shareholders to see the Old Dominion Freight Line, Inc. (NASDAQ:ODFL) share price down 11% in the last month. But in stark contrast, the returns over the last half decade have impressed. We think most investors would be happy with the 166% return, over that period. To some, the recent pullback wouldn’t be surprising after such a fast rise. Only time will tell if there is still too much optimism currently reflected in the share price.
Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
See our latest analysis for Old Dominion Freight Line
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Old Dominion Freight Line achieved compound earnings per share (EPS) growth of 17% per year. This EPS growth is reasonably close to the 22% average annual increase in the share price. Therefore one could conclude that sentiment towards the shares hasn’t morphed very much. In fact, the share price seems to largely reflect the EPS growth.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Old Dominion Freight Line’s earnings, revenue and cash flow.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Old Dominion Freight Line’s TSR for the last 5 years was 171%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!
While the broader market gained around 26% in the last year, Old Dominion Freight Line shareholders lost 7.1% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn’t be so upset, since they would have made 22%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Even so, be aware that Old Dominion Freight Line is showing 1 warning sign in our investment analysis , you should know about…
