Investing in International Flavors & Fragrances (NYSE:IFF) a year ago would have delivered you a 54% gain

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the International Flavors & Fragrances Inc. (NYSE:IFF) share price is 51% higher than it was a year ago, much better than the market return of around 31% (not including dividends) in the same period. So that should have shareholders smiling. On the other hand, longer term shareholders have had a tougher run, with the stock falling 22% in three years.

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

Check out our latest analysis for International Flavors & Fragrances

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over the last twelve months International Flavors & Fragrances went from profitable to unprofitable. While some may see this as temporary, we're a skeptical bunch, and so we're a little surprised to see the share price go up. We might get a clue to explain the share price move by looking to other metrics.

We doubt the modest 1.5% dividend yield is doing much to support the share price. International Flavors & Fragrances' revenue actually dropped 4.7% over last year. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

International Flavors & Fragrances is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts

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. In the case of International Flavors & Fragrances, it has a TSR of 54% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that International Flavors & Fragrances shareholders have received a total shareholder return of 54% over the last year. That's including the dividend. Notably the five-year annualised TSR loss of 0.2% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. 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. To that end, you should be aware of the 1 warning sign we've spotted with International Flavors & Fragrances .

Of course International Flavors & Fragrances may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

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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.