Conagra Brands (NYSE:CAG) shareholders have earned a 14% CAGR over the last three years

Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. For example, the Conagra Brands, Inc. (NYSE:CAG) share price return of 36% over three years lags the market return in the same period. Looking at more recent returns, the stock is up 11% in a year.

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

See our latest analysis for Conagra Brands

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 of share price growth, Conagra Brands actually saw its earnings per share (EPS) drop 4.8% per year.

Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. Therefore, it makes sense to look into other metrics.

It may well be that Conagra Brands revenue growth rate of 3.3% 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 company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. You can see what analysts are predicting for Conagra Brands in this interactive graph of future profit estimates.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Conagra Brands the TSR over the last 3 years was 50%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Conagra Brands has rewarded shareholders with a total shareholder return of 15% in the last twelve months. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 3%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 5 warning signs for Conagra Brands (1 is concerning) that you should be aware of.

Conagra Brands is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.