Investing in Kellogg (NYSE:K) three years ago would have delivered you a 29% gain

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Buying a low-cost index fund will get you the average market return. But across the board there are plenty of stocks that underperform the market. Unfortunately for shareholders, while the Kellogg Company (NYSE:K) share price is up 15% in the last three years, that falls short of the market return. At least the stock price is up over the last year, albeit only by 4.6%.

Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholders returns.

View our latest analysis for Kellogg

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 three years of share price growth, Kellogg actually saw its earnings per share (EPS) drop 11% per year.

The strong decline in earnings per share suggests the market isn’t using EPS to judge the company. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.

We severely doubt anyone is particularly impressed with the modest 1.3% three-year revenue growth rate. While we don’t have an obvious theory to explain the share price rise, a closer look at the data might be enlightening.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

NYSE:K Earnings and Revenue Growth December 21st 2021

Kellogg is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Kellogg the TSR over the last 3 years was 29%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Kellogg shareholders gained a total return of 8.6% during the year. But that return falls short of the market. On the bright side, that’s still a gain, and it’s actually better than the average return of 0.8% over half a decade It is possible that returns will improve along with the business fundamentals. It’s always interesting to track share price performance over the longer term. But to understand Kellogg better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 1 warning sign with Kellogg , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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. 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.