Low-cost index funds make it easy to achieve average market returns. But in any diversified portfolio of stocks, you’ll see some that fall short of the average. That’s what has happened with the Flowers Foods, Inc. (NYSE:FLO) share price. It’s up 17% over three years, but that is below the market return. Zooming in, the stock is actually down 2.5% in the last year.
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 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 three years of share price growth, Flowers Foods actually saw its earnings per share (EPS) drop 6.0% per year. Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it’s worth considering other metrics as well.
Do you think that shareholders are buying for the 1.1% per annum revenue growth trend? We don’t. While we don’t have an obvious theory to explain the share price rise, a closer look at the data might be enlightening.
The chart below shows how revenue and earnings have changed with time, (if you click on the chart you can see the actual values).
This free interactive report on Flowers Foods’s balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Flowers Foods, it has a TSR of 31% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Flowers Foods provided a TSR of 1.1% over the last twelve months. But that was short of the market average. It’s probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 4.5% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. 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.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.
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 email@example.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.