Yahoo Finance Those who invested in Tate & Lyle (LON:TATE) five years ago are up 65%
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Tate & Lyle plc (LON:TATE) shareholders have enjoyed a 17% share price rise over the last half decade, well in excess of the market decline of around 6.5% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 7.6% in the last year , including dividends .
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
Check out our latest analysis for Tate & Lyle
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.
Tate & Lyle's earnings per share are down 23% per year, despite strong share price performance over five years.
The strong decline in earnings per share suggests the market isn't using EPS to judge the company. The falling EPS doesn't correlate with the climbing share price, so it's worth taking a look at other metrics.
The revenue reduction of 17% per year is not a positive. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Tate & Lyle is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So we recommend checking out this free report showing consensus forecasts
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Tate & Lyle, it has a TSR of 65% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Tate & Lyle shareholders have received a total shareholder return of 7.6% over the last year. And that does include the dividend. However, the TSR over five years, coming in at 11% per year, is even more impressive. It's always interesting to track share price performance over the longer term. But to understand Tate & Lyle better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Tate & Lyle (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.
But note: Tate & Lyle may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on British 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.
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