Harvey Norman Holdings (ASX:HVN) investors are up 4.0% in the past week, but earnings have declined over the last year

The simplest way to invest in stocks is to buy exchange traded funds. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Harvey Norman Holdings Limited (ASX:HVN) share price is 16% higher than it was a year ago, much better than the market return of around 9.5% (not including dividends) in the same period. So that should have shareholders smiling. The longer term returns have not been as good, with the stock price only 0.8% higher than it was three years ago.

The past week has proven to be lucrative for Harvey Norman Holdings investors, so let's see if fundamentals drove the company's one-year performance.

Check out our latest analysis for Harvey Norman Holdings

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 the last year, Harvey Norman Holdings actually saw its earnings per share drop 35%.

Given the share price gain, we doubt the market is measuring progress with EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.

Absent any improvement, we don't think a thirst for dividends is pushing up the Harvey Norman Holdings' share price. And at a glance the revenue growth does not impress, though a closer look at revenue trends may reveal some form of insight.

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

Harvey Norman Holdings is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Harvey Norman Holdings will earn in the future (free analyst consensus estimates)

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Harvey Norman Holdings' TSR for the last 1 year was 21%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Harvey Norman Holdings has rewarded shareholders with a total shareholder return of 21% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 8%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Harvey Norman Holdings better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Harvey Norman Holdings , and understanding them should be part of your investment process.

We will like Harvey Norman Holdings better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.