Investing in NH Foods (TSE:2282) three years ago would have delivered you a 28% gain

Low-cost index funds make it easy to achieve average market returns. But across the board there are plenty of stocks that underperform the market. For example, the NH Foods Ltd. (TSE:2282) share price return of 19% over three years lags the market return in the same period. At least the stock price is up over the last year, albeit only by 3.2%.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for NH Foods

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Over the last three years, NH Foods failed to grow earnings per share, which fell 6.6% (annualized).

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

It may well be that NH Foods revenue growth rate of 3.9% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that NH Foods has improved its bottom line lately, but what does the future have in store? So it makes a lot of sense to check out what analysts think NH Foods will earn in the future (free profit forecasts).

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for NH Foods the TSR over the last 3 years was 28%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

NH Foods shareholders are up 5.5% for the year (even including dividends). 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. It's always interesting to track share price performance over the longer term. But to understand NH Foods better, we need to consider many other factors. Take risks, for example - NH Foods has 1 warning sign we think you should be aware of.

We will like NH Foods 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 Japanese 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.