As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Ingredion Incorporated (NYSE:INGR) shareholders have had that experience, with the share price dropping 25% in three years, versus a market return of about 49%. The silver lining is that the stock is up 1.9% in about a week.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. 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.
Ingredion saw its EPS decline at a compound rate of 4.8% per year, over the last three years. This reduction in EPS is slower than the 9.2% annual reduction in the share price. So it seems the market was too confident about the business, in the past.
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 Ingredion’s earnings, revenue and cash flow 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Ingredion the TSR over the last 3 years was -20%, 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
Ingredion shareholders gained a total return of 0.7% during the year. But that was short of the market average. It’s probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 3.8% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It’s always interesting to track share price performance over the longer term. But to understand Ingredion better, we need to consider many other factors. For instance, we’ve identified 1 warning sign for Ingredion that you should be aware of.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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