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Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the Associated British Foods plc (LON:ABF) share price slid 17% over twelve months. That falls noticeably short of the market return of around 14%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 2.5% in three years. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
See our latest analysis for Associated British Foods
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
Even though the Associated British Foods share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.
It's surprising to see the share price fall so much, despite the improved EPS. So it's well worth checking out some other metrics, too.
We don't see any weakness in the Associated British Foods' dividend so the steady payout can't really explain the share price drop. The revenue trend doesn't seem to explain why the share price is down. Unless, of course, the market was expecting a revenue uptick.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
Associated British Foods is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
What About Dividends?
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. We note that for Associated British Foods the TSR over the last 1 year was -13%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!