Conagra Brands (NYSE:CAG) sheds US$520m, company earnings and investor returns have been trending downwards for past five years

For many, the main point of investing is to generate higher returns than the overall market. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Conagra Brands, Inc. (NYSE:CAG), since the last five years saw the share price fall 42%. And it’s not just long term holders hurting, because the stock is down 28% in the last year. The falls have accelerated recently, with the share price down 24% in the last three months.

If the past week is anything to go by, investor sentiment for Conagra Brands isn’t positive, so let’s see if there’s a mismatch between fundamentals and the share price.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

During the five years over which the share price declined, Conagra Brands’ earnings per share (EPS) dropped by 15% each year. The share price decline of 10% per year isn’t as bad as the EPS decline. The relatively muted share price reaction might be because the market expects the business to turn around.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Conagra Brands’ TSR for the last 5 years was -30%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

Investors in Conagra Brands had a tough year, with a total loss of 24% (including dividends), against a market gain of about 15%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 5% per year over five years. We realise that Baron Rothschild has said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality business. 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 Conagra Brands you should be aware of.