Investing in Ebro Foods (BME:EBRO) three years ago would have delivered you a 29% gain

Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. Unfortunately for shareholders, while the Ebro Foods, S.A. (BME:EBRO) share price is up 17% in the last three years, that falls short of the market return. Zooming in, the stock is up a respectable 12% in the last year.

So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.

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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.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Ebro Foods the TSR over the last 3 years was 29%, 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

Ebro Foods shareholders gained a total return of 15% during the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 3% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand Ebro Foods better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Ebro Foods , and understanding them should be part of your investment process.

But note: Ebro Foods may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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