Yum! Brands (NYSE:YUM) stock performs better than its underlying earnings growth over last five years
The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the Yum! Brands, Inc. (NYSE:YUM) share price is up 29% in the last five years, that's less than the market return. Zooming in, the stock is up a respectable 5.7% in the last year.
The past week has proven to be lucrative for Yum! Brands investors, so let's see if fundamentals drove the company's five-year performance.
Check out our latest analysis for Yum! Brands
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. 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.
Over half a decade, Yum! Brands managed to grow its earnings per share at 5.7% a year. So the EPS growth rate is rather close to the annualized share price gain of 5% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Yum! Brands has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Yum! Brands the TSR over the last 5 years was 42%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Yum! Brands provided a TSR of 7.8% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 7% over half a decade This suggests the company might be improving over time. 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. Case in point: We've spotted 4 warning signs for Yum! Brands you should be aware of, and 2 of them are a bit concerning.
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.