Does Jack in the Box’s (NASDAQ:JACK) Share Price Gain of 41% Match Its Business Performance?

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But Jack in the Box Inc. (NASDAQ:JACK) has fallen short of that second goal, with a share price rise of 41% over five years, which is below the market return. Unfortunately the share price is down 9.1% in the last year.

View our latest analysis for Jack in the Box

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During five years of share price growth, Jack in the Box achieved compound earnings per share (EPS) growth of 16% per year. This EPS growth is higher than the 7.1% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

NasdaqGS:JACK Past and Future Earnings, April 11th 2019
NasdaqGS:JACK Past and Future Earnings, April 11th 2019

We know that Jack in the Box has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Jack in the Box will grow revenue in the future.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, Jack in the Box’s TSR for the last 5 years was 52%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Jack in the Box shareholders are down 7.4% for the year (even including dividends), but the market itself is up 9.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 8.8% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

But note: Jack in the Box 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 US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.