The total return for Gold Road Resources (ASX:GOR) investors has risen faster than earnings growth over the last three years

One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, Gold Road Resources Limited (ASX:GOR) shareholders have seen the share price rise 24% over three years, well in excess of the market return (3.5%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 3.5%, including dividends.

Since the long term performance has been good but there's been a recent pullback of 4.5%, let's check if the fundamentals match the share price.

See our latest analysis for Gold Road Resources

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).

Gold Road Resources was able to grow its EPS at 5.1% per year over three years, sending the share price higher. In comparison, the 7% per year gain in the share price outpaces the EPS growth. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

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

We know that Gold Road Resources has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Gold Road Resources, it has a TSR of 28% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Gold Road Resources shareholders are up 3.5% for the year (even including dividends). But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 1.8% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.

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