Bunzl (LON:BNZL) sheds 3.2% this week, as yearly returns fall more in line with earnings growth
By buying an index fund, you can roughly match the market return with ease. But if you pick the right individual stocks, you could make more than that. For example, Bunzl plc (LON:BNZL) shareholders have seen the share price rise 38% over three years, well in excess of the market decline (2.4%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 30% , including dividends .
In light of the stock dropping 3.2% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.
View our latest analysis for Bunzl
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Bunzl was able to grow its EPS at 10% per year over three years, sending the share price higher. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 11% average annual increase in the share price. This observation indicates that the market's attitude to the business hasn't changed all that much. Rather, the share price has approximately tracked EPS growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
Dive deeper into Bunzl's key metrics by checking this interactive graph of Bunzl's 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. 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. As it happens, Bunzl's TSR for the last 3 years was 48%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Bunzl shareholders have received a total shareholder return of 30% over the last year. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 6% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Bunzl better, we need to consider many other factors. Even so, be aware that Bunzl is showing 3 warning signs in our investment analysis , you should know about...
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.
