Valhi (NYSE:VHI) sheds US$50m, company earnings and investor returns have been trending downwards for past three years

If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term Valhi, Inc. (NYSE:VHI) shareholders know that all too well, since the share price is down considerably over three years. Regrettably, they have had to cope with a 69% drop in the share price over that period. The more recent news is of little comfort, with the share price down 24% in a year. On top of that, the share price is down 10% in the last week.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

Valhi saw its EPS decline at a compound rate of 9.2% per year, over the last three years. The share price decline of 33% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past. This increased caution is also evident in the rather low P/E ratio, which is sitting at 3.85.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

This free interactive report on Valhi's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Investors in Valhi had a tough year, with a total loss of 23% (including dividends), against a market gain of about 17%. 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 10% 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. 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. To that end, you should learn about the 3 warning signs we've spotted with Valhi (including 1 which is potentially serious) .

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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.