The one-year decline in earnings for Avolta VTX:AVOL) isn't encouraging, but shareholders are still up 30% over that period

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. For example, the Avolta AG (VTX:AVOL) share price is up 27% in the last 1 year, clearly besting the market return of around 8.3% (not including dividends). So that should have shareholders smiling. However, the stock hasn't done so well in the longer term, with the stock only up 20% in three years.

While this past week has detracted from the company's one-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 the last twelve months, Avolta actually shrank its EPS by 1.8%.

Sometimes companies will sacrifice EPS in the short term for longer term gains; and in that case we may be able to find other positives. It makes sense to check some of the other fundamental data for an explanation of the share price rise.

We think that the revenue growth of 4.2% could have some investors interested. We do see some companies suppress earnings in order to accelerate revenue growth.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Avolta is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Avolta, it has a TSR of 30% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that Avolta has rewarded shareholders with a total shareholder return of 30% in the last twelve months. Of course, that includes the dividend. That certainly beats the loss of about 0.5% per year over the last half decade. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. Take risks, for example - Avolta has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

But note: Avolta may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Swiss 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.