The three-year decline in earnings might be taking its toll on Stockland (ASX:SGP) shareholders as stock falls 4.4% over the past week

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, the Stockland (ASX:SGP) share price is up 51% in the last three years, clearly besting the market return of around 17% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 18%, including dividends.

Since the long term performance has been good but there's been a recent pullback of 4.4%, let's check if the fundamentals match the share price.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, Stockland actually saw its earnings per share (EPS) drop 17% per year.

So we doubt that the market is looking to EPS for its main judge of the company's value. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The dividend is no better now than it was three years ago, so that is unlikely to have driven the share price higher. It's much more likely that the fact that Stockland has been growing revenue at 3.4% a year is seen as a genuine positive. It could be that investors are content with the revenue growth on the basis that the company isn't really focussed on profits just yet. And that might explain the higher price.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. If you are thinking of buying or selling Stockland 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. 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. We note that for Stockland the TSR over the last 3 years was 79%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Stockland has rewarded shareholders with a total shareholder return of 18% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 12% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 3 warning signs with Stockland (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

Stockland is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been 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.