If You Had Bought ForFarmers' (AMS:FFARM) Shares Three Years Ago You Would Be Down 47%

Many investors define successful investing as beating the market average over the long term. 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 ForFarmers N.V. (AMS:FFARM) shareholders have had that experience, with the share price dropping 47% in three years, versus a market decline of about 9.6%.

See our latest analysis for ForFarmers

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During the three years that the share price fell, ForFarmers' earnings per share (EPS) dropped by 20% each year. This change in EPS is reasonably close to the 19% average annual decrease in the share price. That suggests that the market sentiment around the company hasn't changed much over that time, despite the disappointment. It seems like the share price is reflecting the declining earnings per share.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, ForFarmers' TSR for the last 3 years was -40%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

ForFarmers shareholders are up 1.3% for the year (even including dividends). It's always nice to make money but this return falls short of the market return which was about 5.0% for the year. The silver lining is that the recent rise is far preferable to the annual loss of 12% that shareholders have suffered over the last three years. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand ForFarmers better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with ForFarmers , and understanding them should be part of your investment process.

Of course ForFarmers may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

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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. 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.
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