Investors more bullish on Sysco (NYSE:SYY) this week as stock advances 3.5%, despite earnings trending downwards over past three years
By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, the Sysco Corporation (NYSE:SYY) share price is up 96% in the last three years, clearly besting the market return of around 64% (not including dividends).
The past week has proven to be lucrative for Sysco investors, so let's see if fundamentals drove the company's three-year performance.
Check out our latest analysis for Sysco
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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the three years of share price growth, Sysco actually saw its earnings per share (EPS) drop 7.5% per year.
So we doubt that the market is looking to EPS for its main judge of the company's value. Therefore, we think it's worth considering other metrics as well.
It could be that the revenue growth of 11% per year is viewed as evidence that Sysco is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.
The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Sysco is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. If you are thinking of buying or selling Sysco stock, you should check out this free report showing analyst consensus estimates for future profits.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Sysco's TSR for the last 3 years was 110%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
Although it hurts that Sysco returned a loss of 4.5% in the last twelve months, the broader market was actually worse, returning a loss of 11%. Longer term investors wouldn't be so upset, since they would have made 8%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It's always interesting to track share price performance over the longer term. But to understand Sysco better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Sysco (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.
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