Edison International (NYSE:EIX) shareholders have earned a 8.3% CAGR over the last three years

You can receive the average market return by buying a low-cost index fund. But you can make better returns by buying undervalued shares. Notably, the Edison International (NYSE:EIX) share price has gained 11% in three years, which is better than the average market return. The bad news is that the share price seems to lack positive momentum recently, since it has dropped 6.5% in the last year.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for Edison International

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Edison International was able to grow its EPS at 16% per year over three years, sending the share price higher. The average annual share price increase of 4% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time.

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

We know that Edison International has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Edison International will grow revenue in the future.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Edison International's TSR for the last 3 years was 27%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Edison International shareholders are down 2.2% for the year (even including dividends), but the market itself is up 23%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 6% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Edison International better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Edison International (at least 2 which are a bit unpleasant) , and understanding them should be part of your investment process.

We will like Edison International better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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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.