Falabella's (SNSE:FALABELLA) investors will be pleased with their decent 56% return over the last year

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Falabella S.A. (SNSE:FALABELLA) share price is 55% higher than it was a year ago, much better than the market return of around 8.7% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! And shareholders have also done well over the long term, with an increase of 34% in the last three years.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

Check out our latest analysis for Falabella

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Falabella went from making a loss to reporting a profit, in the last year.

When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.

We doubt the modest 0.6% dividend yield is doing much to support the share price. Revenue was pretty flat year on year, but maybe a closer look at the data can explain the market optimism.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We know that Falabella has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Falabella stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

It's good to see that Falabella has rewarded shareholders with a total shareholder return of 56% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 2%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Case in point: We've spotted 2 warning signs for Falabella you should be aware of, and 1 of them makes us a bit uncomfortable.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.