Big 5 Sporting Goods’ (NASDAQ:BGFV) three-year earnings growth trails the massive shareholder returns

The maximum you can lose on a stock is 100% of your money (provided you don’t use leverage). But if you choose a business that’s really thriving, it’s possible make more than 100%. For example the Big 5 Sporting Goods Corporation (NASDAQ:BGFV) The stock price is up 288% from three years ago. Most would be happy with that. And over the past month, the stock price is up 12%.

As it’s been a strong week for Big 5 Sporting Goods shareholders, let’s take a look at longer-term fundamentals developments.

Check out our latest analysis of the Big 5 sporting goods

While the efficient markets hypothesis continues to be held by some, evidence shows that markets are over-reactive dynamic systems and investors are not always rational. An imperfect but simple way to consider how a company’s market perception has changed is to compare the change in earnings per share (EPS) to stock price movement.

In three years of rising share prices, the Big 5 sporting goods have averaged earnings per share growth of 97% per year. That EPS growth is higher than the 57% compound annual increase in the stock price. It therefore appears that the market has moderated its growth expectations somewhat. We believe the low P/E of 10.56 also reflects the negative sentiment surrounding the stock.

Below you can see how the EPS has changed over time (click on the image for exact values).

We know that the Big 5 Sporting Goods have improved their bottom line over the past three years, but what does the future hold? Take a closer look at the financial health of the Big 5 sporting goods here free report on its balance sheet.

What about dividends?

In addition to measuring stock price returns, investors should also consider total shareholder return (TSR). While stock price return only reflects the change in stock price, TSR includes the value of dividends (assuming they have been reinvested) and the benefit of any discounted capital raise or spin-off. As a result, for companies that pay a generous dividend, the TSR is often much higher than the stock price return. In the case of the Big 5 Sporting Goods, the TSR over the past 3 years is 404%. That beats the stock price return mentioned earlier. And it’s not worth assuming that the dividend payments largely explain the divergence!

A different perspective

While the broader market is up about 3.9% over the past year, Big 5 Sporting Goods shareholders are down 22% (even including dividends). However, keep in mind that even the best stocks sometimes underperform the market over a 12-month period. Longer-term investors wouldn’t be so upset, since they would have earned 6% each year over a five-year period. If fundamentals continue to point to long-term sustainable growth, the current sell-off could be an opportunity to consider. It is always interesting to follow the development of the share price over the longer term. But to better understand the Big 5 sporting goods, we need to consider many other factors. For example, we discovered it 3 Big 5 Sporting Goods Warning Labels (1 doesn’t sit well with us!) which is something to be aware of before investing here.

If you’d rather check out a different company — one with potentially better financials — don’t miss out free List of companies that have proven that they can increase their profits.

Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on US exchanges.

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This Simply Wall St article is of a general nature. We provide commentary based on historical data and analyst forecasts solely using an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your goals or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.