Stock Analysis

Simply Good Foods' (NASDAQ:SMPL) five-year earnings growth trails the strong shareholder returns

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NasdaqCM:SMPL
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The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. One great example is The Simply Good Foods Company (NASDAQ:SMPL) which saw its share price drive 196% higher over five years. On top of that, the share price is up 32% in about a quarter.

Since the stock has added US$121m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Our analysis indicates that SMPL is potentially undervalued!

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the five years of share price growth, Simply Good Foods moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains.

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

earnings-per-share-growth
NasdaqCM:SMPL Earnings Per Share Growth December 1st 2022

It is of course excellent to see how Simply Good Foods has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

It's good to see that Simply Good Foods has rewarded shareholders with a total shareholder return of 12% in the last twelve months. However, the TSR over five years, coming in at 24% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. It's always interesting to track share price performance over the longer term. But to understand Simply Good Foods better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Simply Good Foods you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

Valuation is complex, but we're helping make it simple.

Find out whether Simply Good Foods is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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