Old Dominion Freight Line, Inc. (NASDAQ:ODFL) shareholders might be concerned after seeing the share price drop 18% in the last quarter. But that doesn’t change the fact that the returns over the last five years have been very strong. We think most investors would be happy with the 101% return, over that period. We think it’s more important to dwell on the long term returns than the short term returns. 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.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Old Dominion Freight Line achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is reasonably close to the 15% average annual increase in the share price. Therefore one could conclude that sentiment towards the shares hasn’t morphed very much. Indeed, it would appear the share price is reacting to the EPS.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
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. It might be well worthwhile taking a look at our free report on Old Dominion Freight Line’s earnings, revenue and cash flow.
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Old Dominion Freight Line’s TSR for the last 5 years was 106%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
