Minera Valparaiso (SNSE:MINERA) investors are up 3.2% in the past week, but earnings have declined over the last three years

By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Minera Valparaiso S.A. (SNSE:MINERA), which is up 28%, over three years, soundly beating the market decline of 40% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 14%, including dividends.

Since the stock has added CL$62b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Minera Valparaiso

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the three years of share price growth, Minera Valparaiso actually saw its earnings per share (EPS) drop 9.2% per year.

So we doubt that the market is looking to EPS for its main judge of the company's value. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The dividend is no better now than it was three years ago, so that is unlikely to have driven the share price higher. But it's far more plausible that the revenue growth of 7.0% per year is viewed as evidence that Minera Valparaiso is growing. It could be that investors are content with the revenue growth on the basis that the company isn't really focussed on profits just yet. And that might explain the higher price.

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

Take a more thorough look at Minera Valparaiso's financial health with this free report on its balance sheet.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Minera Valparaiso the TSR over the last 3 years was 65%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Minera Valparaiso provided a TSR of 14% over the last twelve months. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 24% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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 - Minera Valparaiso has 1 warning sign we think you should be aware of.

Of course Minera Valparaiso may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.