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We think all investors should try to buy and hold high quality multi-year winners. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held Premier Foods plc (LON:PFD) shares for the last five years, while they gained 347%. And this is just one example of the epic gains achieved by some long term investors. We note the stock price is up 3.3% in the last seven days.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
There is no denying that markets are sometimes efficient, but prices do not always reflect 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.
During the five years of share price growth, Premier Foods moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Premier Foods share price has gained 86% in three years. In the same period, EPS is up 9.0% per year. Notably, the EPS growth has been slower than the annualised share price gain of 23% over three years. So it's fair to assume the market has a higher opinion of the business than it did three years ago.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Premier Foods 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Premier Foods the TSR over the last 5 years was 366%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.