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For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. We regret to report that long term General Mills, Inc. (NYSE:GIS) shareholders have had that experience, with the share price dropping 16% in three years, versus a market return of about 25%. The share price has dropped 17% in three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
Since General Mills has shed US$3.0b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
See our latest analysis for General Mills
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.
Although the share price is down over three years, General Mills actually managed to grow EPS by 8.8% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. 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.
We note that the dividend seems healthy enough, so that probably doesn't explain the share price drop. Revenue has been pretty flat over three years, so that isn't an obvious reason shareholders would sell. A closer look at revenue and profit trends might yield insights.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
General Mills is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling General Mills stock, you should check out this free report showing analyst consensus estimates for future profits.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for General Mills the TSR over the last 3 years was -7.8%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.