Lovisa Holdings (ASX:LOV) jumps 10% this week, though earnings growth is still tracking behind five-year shareholder returns

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, you can make far more than 100% on a really good stock. One great example is Lovisa Holdings Limited (ASX:LOV) which saw its share price drive 209% higher over five years. On top of that, the share price is up 27% in about a quarter.

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

Check out our latest analysis for Lovisa Holdings

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 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.

Over half a decade, Lovisa Holdings managed to grow its earnings per share at 13% a year. This EPS growth is slower than the share price growth of 25% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It is of course excellent to see how Lovisa Holdings has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Lovisa Holdings' financial health with this free report on its balance sheet.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Lovisa Holdings the TSR over the last 5 years was 255%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Lovisa Holdings shareholders have received returns of 5.1% over twelve months (even including dividends), which isn't far from the general market return. We should note here that the five-year TSR is more impressive, at 29% per year. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Lovisa Holdings a stock worth watching. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - Lovisa Holdings has 1 warning sign we think you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.