Positive earnings growth hasn't been enough to get ACCO Brands (NYSE:ACCO) shareholders a favorable return over the last five years

By
Simply Wall St
Published
February 17, 2022
NYSE:ACCO
Source: Shutterstock

Ideally, your overall portfolio should beat the market average. But in any portfolio, there will be mixed results between individual stocks. So we wouldn't blame long term ACCO Brands Corporation (NYSE:ACCO) shareholders for doubting their decision to hold, with the stock down 38% over a half decade. But it's up 9.4% in the last week. Less than a week ago ACCO Brands announced its financial results; you can catch up on the most recent data by reading our company report.

On a more encouraging note the company has added US$73m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.

See our latest analysis for ACCO Brands

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

While the share price declined over five years, ACCO Brands actually managed to increase EPS by an average of 3.6% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

Based on these numbers, we'd venture that the market may have been over-optimistic about forecast growth, half a decade ago. Having said that, we might get a better idea of what's going on with the stock by looking at other metrics.

In contrast to the share price, revenue has actually increased by 0.9% a year in the five year period. So it seems one might have to take closer look at the fundamentals to understand why the share price languishes. After all, there may be an opportunity.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

earnings-and-revenue-growth
NYSE:ACCO Earnings and Revenue Growth February 17th 2022

We know that ACCO Brands has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for ACCO Brands in this interactive graph of future profit estimates.

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 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, ACCO Brands' TSR for the last 5 years was -30%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that ACCO Brands has rewarded shareholders with a total shareholder return of 7.9% in the last twelve months. Of course, that includes the dividend. There's no doubt those recent returns are much better than the TSR loss of 5% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 2 warning signs for ACCO Brands (1 is significant!) that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

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