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Did Bega Cheese's (ASX:BGA) Share Price Deserve to Gain 38%?

Simply Wall St
·3 min read

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But investors can boost returns by picking market-beating companies to own shares in. For example, the Bega Cheese Limited (ASX:BGA) share price is up 38% in the last year, clearly besting the market decline of around 9.8% (not including dividends). So that should have shareholders smiling. Unfortunately the longer term returns are not so good, with the stock falling 29% in the last three years.

View our latest analysis for Bega Cheese

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 year Bega Cheese grew its earnings per share (EPS) by 353%. It's fair to say that the share price gain of 38% did not keep pace with the EPS growth. Therefore, it seems the market isn't as excited about Bega Cheese as it was before. This could be an opportunity. Of course, with a P/E ratio of 50.35, the market remains optimistic.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
earnings-per-share-growth

We know that Bega Cheese has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Bega Cheese, it has a TSR of 41% for the last year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Bega Cheese has rewarded shareholders with a total shareholder return of 41% in the last twelve months. And that does include the dividend. That certainly beats the loss of about 1.1% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. Before spending more time on Bega Cheese it might be wise to click here to see if insiders have been buying or selling shares.

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 AU exchanges.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.