Stock Analysis

If You Had Bought Associated British Foods' (LON:ABF) Shares Five Years Ago You Would Be Down 25%

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LSE:ABF
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Associated British Foods plc (LON:ABF) shareholders should be happy to see the share price up 27% in the last quarter. But over the last half decade, the stock has not performed well. You would have done a lot better buying an index fund, since the stock has dropped 25% in that half decade.

See our latest analysis for Associated British Foods

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.

Looking back five years, both Associated British Foods' share price and EPS declined; the latter at a rate of 2.9% per year. This reduction in EPS is less than the 6% annual reduction in the share price. This implies that the market is more cautious about the business these days.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
LSE:ABF Earnings Per Share Growth January 14th 2021

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free interactive report on Associated British Foods' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What about the Total Shareholder Return (TSR)?

We've already covered Associated British Foods' share price action, but we should also mention its total shareholder return (TSR). 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. Dividends have been really beneficial for Associated British Foods shareholders, and that cash payout explains why its total shareholder loss of 20%, over the last 5 years, isn't as bad as the share price return.

A Different Perspective

While the broader market lost about 3.7% in the twelve months, Associated British Foods shareholders did even worse, losing 17%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Associated British Foods better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for Associated British Foods you should be aware of.

Associated British Foods is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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

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