If you hold a stock for the long term, you certainly want to see a positive return. Additionally, you typically want the stock price to rise faster than the market. General Mills (NYSE:GIS) fell short on the second target, with the share price rising 33% over five years, below the market return. Unfortunately, the stock is down 19% in the last year.
So let’s investigate and see if the company’s long term performance is in line with the progress of its underlying business.
View our latest analysis for General Mills
To quote Buffett, “Ships will sail around the world, but the Flat Earth Society will thrive. There will continue to be a wide disconnect between price and value in the marketplace…” 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.
General Mills has grown its earnings per share at 12% per year for over five years. This EPS growth has outpaced the 6% average annual increase in its share price, which is why the market doesn’t seem all that enthusiastic about the stock lately.
The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Before buying or selling a stock, we always recommend a close look at historic growth trends, which you can find here.
What about dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that takes into account the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It can be said that the TSR gives a more comprehensive picture of the return generated by a stock. In the case of General Mills, the TSR for the past 5 years is 56%, which exceeds the share price return mentioned earlier. This is mainly a result of the dividend payments.
A different perspective
It’s been a tough year for General Mills investors. They’ve lost a total of 16%, including dividends, while the market has risen about 24%. But remember that even the best stocks can underperform the market over a 12-month period. On the bright side, long-term shareholders have benefited, with a 9% annual return over five years. If the fundamental data continues to point to long-term, sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at stock prices over the long term as a proxy for business performance. But to gain true insight, other information needs to be considered. For example, consider risk. Every company has risks. We’ve found that risks lurk in companies. One warning sign for General Mills You should know.
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
