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The Associated British Foods (LON:ABF) Share Price Is Down 27% So Some Shareholders Are Getting Worried

As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term Associated British Foods plc (LON:ABF) shareholders, since the share price is down 27% in the last three years, falling well short of the market return of around 19%. It's up 2.5% in the last seven days.

See our latest analysis for Associated British Foods

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).

Although the share price is down over three years, Associated British Foods actually managed to grow EPS by 7.3% per year in that time. 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. 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.

The modest 2.0% dividend yield is unlikely to be guiding the market view of the stock. Revenue is actually up 6.9% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Associated British Foods further; while we may be missing something on this analysis, there might also be an opportunity.

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

LSE:ABF Income Statement, September 4th 2019
LSE:ABF Income Statement, September 4th 2019

Associated British Foods is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

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. As it happens, Associated British Foods's TSR for the last 3 years was -23%, 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 Associated British Foods shareholders have received a total shareholder return of 5.7% over one year. That's including the dividend. That certainly beats the loss of about 1.6% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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.

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 GB 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 editorial-team@simplywallst.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.

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