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 Ingredion Incorporated (NYSE:INGR) has fallen short of that second goal, with a share price rise of 41% over five years, which is below the market return. The last year has been disappointing, with the stock price down 30% in that time.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Ingredion achieved compound earnings per share (EPS) growth of 4.0% per year. This EPS growth is slower than the share price growth of 7.1% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That’s not necessarily surprising considering the five-year track record of earnings growth.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on Ingredion’s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Ingredion the TSR over the last 5 years was 56%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Ingredion shareholders are down 28% for the year (even including dividends), but the market itself is up 3.1%. 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 9.3% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. If you would like to research Ingredion in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course Ingredion may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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 email@example.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.