KSB SE KGaA (ETR:KSB) jumps 7.2% this week, though earnings growth is still tracking behind three-year shareholder returns

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you buy shares in a really great company, you can more than double your money. To wit, the KSB SE & Co. KGaA (ETR:KSB) share price has flown 140% in the last three years. That sort of return is as solid as granite. On top of that, the share price is up 34% in about a quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.

The past week has proven to be lucrative for KSB SE KGaA investors, so let's see if fundamentals drove the company's three-year performance.

View our latest analysis for KSB SE KGaA

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

KSB SE KGaA was able to grow its EPS at 34% per year over three years, sending the share price higher. This EPS growth is remarkably close to the 34% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Au contraire, the share price change has arguably mimicked the EPS growth.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that KSB SE KGaA has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on KSB SE KGaA's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for KSB SE KGaA the TSR over the last 3 years was 159%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that KSB SE KGaA has rewarded shareholders with a total shareholder return of 29% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 5% 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. It's always interesting to track share price performance over the longer term. But to understand KSB SE KGaA better, we need to consider many other factors. Take risks, for example - KSB SE KGaA has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.