HELLA GmbH KGaA's (ETR:HLE) investors will be pleased with their decent 92% return over the last five years

When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, the HELLA GmbH & Co. KGaA (ETR:HLE) share price is up 79% in the last 5 years, clearly besting the market decline of around 1.1% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 8.5% in the last year, including dividends.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for HELLA GmbH KGaA

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.

During five years of share price growth, HELLA GmbH KGaA actually saw its EPS drop 12% per year.

Essentially, it doesn't seem likely that investors are focused on EPS. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

The modest 0.8% dividend yield is unlikely to be propping up the share price. In contrast revenue growth of 5.9% 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.

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

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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. As it happens, HELLA GmbH KGaA's TSR for the last 5 years was 92%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

HELLA GmbH KGaA shareholders gained a total return of 8.5% during the year. But that return falls short of the market. On the bright side, the longer term returns (running at about 14% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. Before forming an opinion on HELLA GmbH KGaA you might want to consider these 3 valuation metrics.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.