James Hardie Industries' (ASX:JHX) investors will be pleased with their notable 70% return over the last five years

When we invest, we're generally looking for stocks that outperform the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term James Hardie Industries plc (ASX:JHX) shareholders have enjoyed a 63% share price rise over the last half decade, well in excess of the market return of around 17% (not including dividends).

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

Check out our latest analysis for James Hardie Industries

There is no denying that markets are sometimes efficient, but prices do not always reflect 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 five years of share price growth, James Hardie Industries achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is reasonably close to the 10% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Indeed, it would appear the share price is reacting to the EPS.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Dividend Lost

The value of past dividends are accounted for in the total shareholder return (TSR), but not in the share price return mentioned above. By accounting for the value of dividends paid, the TSR can be seen as a more complete measure of the value a company brings to its shareholders. Over the last 5 years, James Hardie Industries generated a TSR of 70%, which is, of course, better than the share price return. Even though the company isn't paying dividends at the moment, it has done in the past.

A Different Perspective

While the broader market gained around 14% in the last year, James Hardie Industries shareholders lost 13%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 11%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Is James Hardie Industries cheap compared to other companies? These 3 valuation measures might help you decide.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.