When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you’d generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the RCL Foods Limited (JSE:RCL) share price is up 19% in the last five years, that’s less than the market return. Over the last twelve months the stock price has risen a very respectable 5.5%.

Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).

During the last half decade, RCL Foods became profitable. That would generally be considered a positive, so we’d hope to see the share price to rise. 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. In fact, the RCL Foods stock price is 11% lower in the last three years. Meanwhile, EPS is up 14% per year. It would appear there’s a real mismatch between the increasing EPS and the share price, which has declined -4% a year for three years.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It’s good to see that there was some significant insider buying in the last three months. That’s a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, RCL Foods’ TSR for the last 5 years was 106%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.