Did You Participate In Any Of Archer-Daniels-Midland's (NYSE:ADM) Respectable 50% Return?
If you buy and hold a stock for many years, you’d hope to be making a profit. Furthermore, you’d generally like to see the share price rise faster than the market Unfortunately for shareholders, while the Archer-Daniels-Midland Company (NYSE:ADM) share price is up 28% in the last five years, that’s less than the market return. Looking at the last year alone, the stock is up 11%.
View our latest analysis for Archer-Daniels-Midland
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 five years of share price growth, Archer-Daniels-Midland actually saw its EPS drop 0.5% per year.
By glancing at these numbers, we’d posit that the decline in earnings per share is not representative of how the business has changed over the years. Therefore, it’s worth taking a look at other metrics to try to understand the share price movements.
It is not great to see that revenue has dropped by 0.6% per year over five years. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.
You can see below how earnings and revenue have 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. This free report showing analyst forecasts should help you form a view on Archer-Daniels-Midland
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. As it happens, Archer-Daniels-Midland’s TSR for the last 5 years was 50%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Archer-Daniels-Midland provided a TSR of 15% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 8% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 3 warning signs with Archer-Daniels-Midland (at least 2 which are significant) , and understanding them should be part of your investment process.
Archer-Daniels-Midland 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 US exchanges.
This article by Simply Wall St is general in nature. 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.
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