Despite the downward trend in earnings at Austal (ASX:ASB) the stock lifts 10.0%, bringing one-year gains to 45%

If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Austal Limited (ASX:ASB) share price is 43% higher than it was a year ago, much better than the market return of around 9.9% (not including dividends) in the same period. So that should have shareholders smiling. The longer term returns have not been as good, with the stock price only 0.8% higher than it was three years ago.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

See our latest analysis for Austal

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).

Austal went from making a loss to reporting a profit, in the last year.

When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.

We think that the revenue growth of 3.1% could have some investors interested. Many businesses do go through a phase where they have to forgo some profits to drive business development, and sometimes its for the best.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About The Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Austal's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Its history of dividend payouts mean that Austal's TSR of 45% over the last 1 year is better than the share price return.

A Different Perspective

It's nice to see that Austal shareholders have received a total shareholder return of 45% over the last year. That gain is better than the annual TSR over five years, which is 4%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 1 warning sign for Austal that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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