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While Associated British Foods plc (LON:ABF) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 13% in the last quarter. In contrast the stock is up over the last three years. However, it's unlikely many shareholders are elated with the share price gain of 15% over that time, given the rising market.
While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.
Check out our latest analysis for Associated British Foods
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 three years of share price growth, Associated British Foods achieved compound earnings per share growth of 47% per year. The average annual share price increase of 5% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Associated British Foods has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Associated British Foods' balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Associated British Foods' TSR for the last 3 years was 24%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Associated British Foods shareholders gained a total return of 6.8% during the year. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 0.9% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Associated British Foods is showing 1 warning sign in our investment analysis , you should know about...