The worst outcome, after buying a company’s stock (assuming there is no leverage), would be to lose all the money you invested. But on the bright side, if you buy shares of a high quality company for the right price, you can earn well over 100%. For example, the price of Ltd The stock (ASX: CAR) has risen 145% in the past five years. Meanwhile, the stock price is 1.5% higher than it was a week ago.

With that in mind, it’s worth considering whether the underlying fundamentals of the business have been driving long-term performance, or if there are any gaps.

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It is undeniable that markets are sometimes efficient, but prices do not always reflect the underlying business performance. One way to look at how market sentiment has changed over time is to look at the interaction between a company’s stock price and its earnings per share (EPS).

Over the five years of share price growth, has achieved compound earnings per share (EPS) growth of 0.4% per year. This EPS growth is lower than the 20% average annual increase in the share price. This suggests that market participants hold society in the highest regard these days. And that’s hardly shocking given the growth history. This optimism is visible in its rather high P / E ratio of 54.42.

You can see below how the EPS has evolved over time (see the exact values ​​by clicking on the image).

ASX: CAR Growth in earnings per share on December 3, 2021

We love that insiders have bought stocks in the past twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide for the business. This free’s interactive Profit, Revenue and Cash Flow report is a great place to start if you want to dig deeper into the stock.

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 discounted demerger or capital increase, as well as any dividend, on the basis of the assumption that dividends are reinvested. Arguably, the TSR gives a more complete picture of the return generated by a stock. We note that for the TSR over the past 5 years was 188%, which is better than the share price return mentioned above. This is largely the result of his dividend payments!

A different perspective

We are pleased to report that shareholders received a 32% year-on-year total shareholder return. This includes the dividend. As the 1-year TSR is better than the 5-year TSR (the latter standing at 24% per year), it seems that the stock’s performance has improved in recent times. Someone with an optimistic outlook might view the recent improvement in TSR as indicating that the business itself is improving over time. I find it very interesting to look at the stock price over the long term as an indicator of company performance. But to really understand better, we have to take other information into account as well. For example, we discovered 1 warning sign for which you should know before investing here.

If you like to buy stocks alongside management then you might love this free list of companies. (Hint: insiders bought them).

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

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.