The 3.6% return this week takes Kraft Heinz's (NASDAQ:KHC) shareholders five-year gains to 41%
If you buy and hold a stock for many years, you'd hope to be making a profit. Furthermore, you'd generally like to see the share price rise faster than the market. But The Kraft Heinz Company (NASDAQ:KHC) has fallen short of that second goal, with a share price rise of 11% over five years, which is below the market return. Zooming in, the stock is actually down 6.3% in the last year.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
Check out our latest analysis for Kraft Heinz
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 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).
During the last half decade, Kraft Heinz became profitable. That would generally be considered a positive, so we'd hope to see the share price to rise. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. In fact, the Kraft Heinz stock price is 11% lower in the last three years. During the same period, EPS grew by 101% each year. It would appear there's a real mismatch between the increasing EPS and the share price, which has declined -4% a year for three years.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Kraft Heinz has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Kraft Heinz stock, you should check out this FREE detailed report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, Kraft Heinz's TSR for the last 5 years was 41%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Investors in Kraft Heinz had a tough year, with a total loss of 1.9% (including dividends), against a market gain of about 32%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 7% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Kraft Heinz you should know about.
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 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.
