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For many investors, the main point of stock picking is to generate higher returns than the overall market. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Albertsons Companies, Inc. (NYSE:ACI) shareholders have had that experience, with the share price dropping 21% in three years, versus a market return of about 55%.
Since Albertsons Companies has shed US$495m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.
Our free stock report includes 2 warning signs investors should be aware of before investing in Albertsons Companies. Read for free now.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
Albertsons Companies saw its EPS decline at a compound rate of 15% per year, over the last three years. In comparison the 7% compound annual share price decline isn't as bad as the EPS drop-off. This suggests that the market retains some optimism around long term earnings stability, despite past EPS declines.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Albertsons Companies' earnings, revenue and cash flow.
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 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. In the case of Albertsons Companies, it has a TSR of 14% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Albertsons Companies shareholders are up 6.3% for the year (even including dividends). While you don't go broke making a profit, this return was actually lower than the average market return of about 12%. On the other hand, the TSR over three years was worse, at just 4% per year. This suggests the company's position is improving. If the business can justify the share price gain with improving fundamental data, then there could be more gains to come. It's always interesting to track share price performance over the longer term. But to understand Albertsons Companies better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Albertsons Companies you should be aware of.