Administradora de Fondos de Pensiones Provida's (SNSE:PROVIDA) three-year earnings growth trails the incredible shareholder returns

We think that it's fair to say that the possibility of finding fantastic multi-year winners is what motivates many investors. But when you hold the right stock for the right time period, the rewards can be truly huge. Take, for example, the Administradora de Fondos de Pensiones Provida S.A. (SNSE:PROVIDA) share price, which skyrocketed 368% over three years. On top of that, the share price is up 31% in about a quarter.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

View our latest analysis for Administradora de Fondos de Pensiones Provida

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 three years of share price growth, Administradora de Fondos de Pensiones Provida achieved compound earnings per share growth of 18% per year. This EPS growth is lower than the 67% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It's not unusual to see the market 're-rate' a stock, after a few years of growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

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

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Administradora de Fondos de Pensiones Provida's TSR for the last 3 years was 796%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Administradora de Fondos de Pensiones Provida shareholders have received a total shareholder return of 70% over one year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 38% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Administradora de Fondos de Pensiones Provida , and understanding them should be part of your investment process.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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