HELLA GmbH KGaA (ETR:HLE) shareholders have earned a 20% CAGR over the last five years

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 a lighter note, a good company can see its share price rise well over 100%. For instance, the price of HELLA GmbH & Co. KGaA (ETR:HLE) stock is up an impressive 125% over the last five years. In the last week shares have slid back 1.0%.

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

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 five years of share price growth, HELLA GmbH KGaA actually saw its EPS drop 1.3% per year.

By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.

The modest 1.1% dividend yield is unlikely to be propping up the share price. In contrast revenue growth of 8.4% per year is probably viewed as evidence that HELLA GmbH KGaA is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We know that HELLA GmbH KGaA has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on HELLA GmbH KGaA

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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 HELLA GmbH KGaA the TSR over the last 5 years was 144%, 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

HELLA GmbH KGaA shareholders are up 2.3% for the year (even including dividends). But that was short of the market average. On the bright side, the longer term returns (running at about 20% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand HELLA GmbH KGaA better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with HELLA GmbH KGaA .

Of course HELLA GmbH KGaA 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 German 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.