Those who invested in Computershare (ASX:CPU) three years ago are up 96%

By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, Computershare Limited (ASX:CPU) shareholders have seen the share price rise 79% over three years, well in excess of the market return (12%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 9.1% in the last year , including dividends .

So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.

Check out our latest analysis for Computershare

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During three years of share price growth, Computershare achieved compound earnings per share growth of 33% per year. This EPS growth is higher than the 21% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock.

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

We know that Computershare has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Computershare's financial health with this free report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Computershare, it has a TSR of 96% for the last 3 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!

A Different Perspective

Computershare shareholders gained a total return of 9.1% during the year. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 12% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Computershare , and understanding them should be part of your investment process.

But note: Computershare may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.