Bega Cheese (ASX:BGA) pulls back 5.6% this week, but still delivers shareholders decent 17% CAGR over 3 years

One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Bega Cheese Limited (ASX:BGA), which is up 50%, over three years, soundly beating the market return of 30% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 3.2%, including dividends.

In light of the stock dropping 5.6% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Bega Cheese was able to grow its EPS at 28% per year over three years, sending the share price higher. We note, however, that extraordinary items have impacted earnings. This EPS growth is higher than the 14% average annual increase in the share price. So it seems investors have become more cautious about the company, over time.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It might be well worthwhile taking a look at our free report on Bega Cheese's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Bega Cheese's TSR for the last 3 years was 59%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Bega Cheese provided a TSR of 3.2% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 3% over half a decade This suggests the company might be improving over time. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

We will like Bega Cheese better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.