The most you can lose on any stock (assuming you don’t use leverage) is 100% of your money. But if you buy shares in a really great company, you can more than double your money. For example, the Bunge Limited (NYSE:BG) share price has soared 114% in the last three years. Most would be happy with that. Also pleasing for shareholders was the 16% gain in the last three months. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.
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.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
Bunge was able to grow its EPS at 84% per year over three years, sending the share price higher. This EPS growth is higher than the 29% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. We’d venture the lowish P/E ratio of 9.16 also reflects the negative sentiment around the stock.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It is of course excellent to see how Bunge has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Bunge’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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Bunge’s TSR for the last 3 years was 137%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
We’re pleased to report that Bunge shareholders have received a total shareholder return of 29% over one year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 14% per year), it would seem that the stock’s performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we’ve discovered 7 warning signs for Bunge (3 are a bit concerning!) that you should be aware of before investing here.
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.
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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.