Yahoo Finance ForFarmers (AMS:FFARM) investors are sitting on a loss of 54% if they invested five years ago
Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. For example, after five long years the ForFarmers N.V. (AMS:FFARM) share price is a whole 66% lower. We certainly feel for shareholders who bought near the top.
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.
Check out our latest analysis for ForFarmers
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.
Over five years ForFarmers' earnings per share dropped significantly, falling to a loss, with the share price also lower. The recent extraordinary items contributed to this situation. At present it's hard to make valid comparisons between EPS and the share price. However, we can say we'd expect to see a falling share price in this scenario.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for ForFarmers the TSR over the last 5 years was -54%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
Investors in ForFarmers had a tough year, with a total loss of 14% (including dividends), against a market gain of about 20%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 9% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand ForFarmers better, we need to consider many other factors. Take risks, for example - ForFarmers has 1 warning sign we think you should be aware of.
ForFarmers is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Dutch 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.
