The total return for Nemetschek (ETR:NEM) investors has risen faster than earnings growth over the last three years

Nemetschek SE (ETR:NEM) shareholders have seen the share price descend 14% over the month. But that doesn't undermine the rather lovely longer-term return, if you measure over the last three years. In three years the stock price has launched 104% higher: a great result. It's not uncommon to see a share price retrace a bit, after a big gain. The thing to consider is whether the underlying business is doing well enough to support the current price.

Although Nemetschek has shed €935m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 three years of share price growth, Nemetschek achieved compound earnings per share growth of 5.3% per year. This EPS growth is lower than the 27% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did three years ago. That's not necessarily surprising considering the three-year track record of earnings growth. This optimism is also reflected in the fairly generous P/E ratio of 64.90.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Nemetschek's key metrics by checking this interactive graph of Nemetschek's earnings, revenue and cash flow.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Nemetschek, it has a TSR of 108% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Nemetschek shareholders have received a total shareholder return of 21% over one year. And that does include the dividend. That's better than the annualised return of 12% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Before forming an opinion on Nemetschek you might want to consider these 3 valuation metrics.

We will like Nemetschek better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.