While shareholders of Marzetti (NASDAQ:MZTI) are in the red over the last three years, underlying earnings have actually grown
For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term The Marzetti Company (NASDAQ:MZTI) shareholders have had that experience, with the share price dropping 16% in three years, versus a market return of about 86%. But it's up 5.3% in the last week.
The recent uptick of 5.3% could be a positive sign of things to come, so let's take a look at historical fundamentals.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Although the share price is down over three years, Marzetti actually managed to grow EPS by 21% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.
It's worth taking a look at other metrics, because the EPS growth doesn't seem to match with the falling share price.
Revenue is actually up 3.1% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating Marzetti further; while we may be missing something on this analysis, there might also be an opportunity.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Take a more thorough look at Marzetti's financial health with this free report on its balance sheet.
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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Marzetti's TSR for the last 3 years was -10%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Marzetti shareholders are down 12% for the year (even including dividends), but the market itself is up 14%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 1.5%, each year, over five years. 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. Before spending more time on Marzetti 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 American exchanges.
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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.