Generation Development Group (ASX:GDG) investors are up 10% in the past week, but earnings have declined over the last three years

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For instance the Generation Development Group Limited (ASX:GDG) share price is 201% higher than it was three years ago. How nice for those who held the stock! Also pleasing for shareholders was the 20% gain in the last three months.

Since the stock has added AU$30m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Generation Development Group

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.

During the three years of share price growth, Generation Development Group actually saw its earnings per share (EPS) drop 8.3% per year.

This means it's unlikely the market is judging the company based on earnings growth. Given this situation, it makes sense to look at other metrics too.

Languishing at just 1.2%, we doubt the dividend is doing much to prop up the share price. It could be that the revenue growth of 53% per year is viewed as evidence that Generation Development Group is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. If you are thinking of buying or selling Generation Development Group stock, you should check out this free report showing analyst profit forecasts.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Generation Development Group the TSR over the last 3 years was 231%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Generation Development Group shareholders have received a total shareholder return of 95% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 28%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Generation Development Group better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Generation Development Group .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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