When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. To wit, the George Weston share price has climbed 94% in five years, easily topping the market return of 40% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 21% in the last year, including dividends.

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

Check out our latest analysis for George Weston

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 last half decade, George Weston 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. Indeed, the George Weston share price has gained 65% in three years. During the same period, EPS grew by 77% each year. This EPS growth is higher than the 18% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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 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. In the case of George Weston, it has a TSR of 113% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!