Investing in Conagra Brands (NYSE:CAG) three years ago would have delivered you a 26% gain

Investors can buy low cost index fund if they want to receive the average market return. But in any diversified portfolio of stocks, you'll see some that fall short of the average. Unfortunately for shareholders, while the Conagra Brands, Inc. (NYSE:CAG) share price is up 15% in the last three years, that falls short of the market return. Unfortunately, the share price has fallen 4.9% over twelve months.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for Conagra Brands

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 three years of share price growth, Conagra Brands achieved compound earnings per share growth of 8.6% per year. This EPS growth is higher than the 5% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

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

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on Conagra Brands' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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 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 and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Conagra Brands' TSR for the last 3 years was 26%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Although it hurts that Conagra Brands returned a loss of 1.3% in the last twelve months, the broader market was actually worse, returning a loss of 19%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 1.8% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 4 warning signs for Conagra Brands (1 makes us a bit uncomfortable) that you should be aware of.

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 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.

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