The main aim of stock picking is to find the market-beating stocks. But even the best stock picker will only win with some selections. So we wouldn't blame long term Fresh Del Monte Produce Inc. (NYSE:FDP) shareholders for doubting their decision to hold, with the stock down 39% over a half decade. And the share price decline continued over the last week, dropping some 7.0%.
View our latest analysis for Fresh Del Monte Produce
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the five years over which the share price declined, Fresh Del Monte Produce's earnings per share (EPS) dropped by 3.0% each year. This reduction in EPS is less than the 9% annual reduction in the share price. So it seems the market was too confident about the business, in the past.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Fresh Del Monte Produce has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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 Fresh Del Monte Produce the TSR over the last 5 years was -36%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Fresh Del Monte Produce's TSR for the year was broadly in line with the market average, at 36%. To take a positive view, the gain is pleasing, and it sure beats annualized TSR loss of 6%, which was endured over half a decade. We're pretty skeptical of turnaround stories, but it's good to see the recent share price recovery. 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. To that end, you should be aware of the 1 warning sign we've spotted with Fresh Del Monte Produce .