Earnings growth of 7.6% over 3 years hasn't been enough to translate into positive returns for Alexander & Baldwin (NYSE:ALEX) shareholders

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term Alexander & Baldwin, Inc. (NYSE:ALEX) shareholders, since the share price is down 19% in the last three years, falling well short of the market return of around 29%.

Since Alexander & Baldwin has shed US$60m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Alexander & Baldwin

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 unfortunate three years of share price decline, Alexander & Baldwin actually saw its earnings per share (EPS) improve by 25% per year. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.

Given the healthiness of the dividend payments, we doubt that they've concerned the market. However, the weak share price might be related to the fact revenue has been disappearing at a rate of 8.3% each year, over three years. This could have some investors worried about the longer term growth potential (or lack thereof).

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We know that Alexander & Baldwin has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Alexander & Baldwin stock, you should check out this free report showing analyst profit forecasts.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Alexander & Baldwin the TSR over the last 3 years was -7.4%, 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

Alexander & Baldwin provided a TSR of 7.0% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 2% over half a decade This suggests the company might be improving over time. 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. For instance, we've identified 3 warning signs for Alexander & Baldwin (1 shouldn't be ignored) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.