One simple way to benefit from a rising market is to buy an index fund. But in any given year a good portion of stocks will fall short of that. That's what happened in the case of John B. Sanfilippo & Son, Inc. (NASDAQ:JBSS): its share price dropped 19% while the market declined 16%. At least the damage isn't so bad if you look at the last three years, since the stock is down 13% in that time. The falls have accelerated recently, with the share price down 11% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 13% in the same timeframe.
Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.
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.
Unfortunately John B. Sanfilippo & Son reported an EPS drop of 1.9% for the last year. The share price decline of 19% is actually more than the EPS drop. So it seems the market was too confident about the business, a year ago.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Dive deeper into John B. Sanfilippo & Son's key metrics by checking this interactive graph of John B. Sanfilippo & Son's earnings, revenue and cash flow.
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 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. We note that for John B. Sanfilippo & Son the TSR over the last 1 year was -16%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
John B. Sanfilippo & Son shareholders are down 16% over twelve months (even including dividends), which isn't far from the market return of -16%. Longer term investors wouldn't be so upset, since they would have made 7%, each year, over five years. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. 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 for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with John B. Sanfilippo & Son (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here