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The 4.5% return this week takes Constellation Brands' (NYSE:STZ) shareholders five-year gains to 37%

·3 min read

If you buy and hold a stock for many years, you'd hope to be making a profit. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the Constellation Brands, Inc. (NYSE:STZ) share price is up 28% in the last five years, that's less than the market return. Zooming in, the stock is up a respectable 6.3% in the last year.

The past week has proven to be lucrative for Constellation Brands investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for Constellation Brands

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Constellation Brands actually saw its EPS drop 24% per year. This was, in part, due to extraordinary items impacting earning in the last twelve months.

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 1.3% dividend yield is attracting many buyers to the stock. On the other hand, Constellation Brands' revenue is growing nicely, at a compound rate of 3.7% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

earnings-and-revenue-growth
earnings-and-revenue-growth

Constellation Brands 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?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, Constellation Brands' TSR for the last 5 years was 37%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Constellation Brands shareholders have received a total shareholder return of 7.7% over one year. Of course, that includes the dividend. That's better than the annualised return of 7% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Constellation Brands , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.

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.