Yahoo Finance Investing in J Sainsbury (LON:SBRY) five years ago would have delivered you a 77% gain
When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. To wit, the J Sainsbury share price has climbed 38% in five years, easily topping the market return of 0.7% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 2.3%, including dividends.
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.
View our latest analysis for J Sainsbury
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 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 the five years of share price growth, J Sainsbury moved from a loss to profitability. That would generally be considered a positive, so we'd hope to see the share price to rise.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on J Sainsbury's earnings, revenue and cash flow.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, J Sainsbury's TSR for the last 5 years was 77%, 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
J Sainsbury shareholders gained a total return of 2.3% during the year. But that return falls short of the market. On the bright side, the longer term returns (running at about 12% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. Consider risks, for instance. Every company has them, and we've spotted 4 warning signs for J Sainsbury you should know about.
If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com