Prosegur Cash's (BME:CASH) earnings growth rate lags the 45% return delivered to shareholders

If you want to compound wealth in the stock market, you can do so by buying an index fund. But if you pick the right individual stocks, you could make more than that. For example, the Prosegur Cash, S.A. (BME:CASH) share price is up 37% in the last 1 year, clearly besting the market return of around 19% (not including dividends). So that should have shareholders smiling. However, the stock hasn't done so well in the longer term, with the stock only up 11% in three years.

Since the long term performance has been good but there's been a recent pullback of 6.0%, let's check if the fundamentals match the share price.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During the last year Prosegur Cash grew its earnings per share (EPS) by 42%. This EPS growth is reasonably close to the 37% increase in the share price. So this implies that investor expectations of the company have remained pretty steady. We don't think its coincidental that the share price is growing at a similar rate to the earnings per share.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It is of course excellent to see how Prosegur Cash has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Prosegur Cash stock, you should check out this FREE detailed report on its balance sheet .

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Prosegur Cash, it has a TSR of 45% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Prosegur Cash shareholders have received a total shareholder return of 45% over the last year. Of course, that includes the dividend. That certainly beats the loss of about 1.1% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand Prosegur Cash better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Prosegur Cash .

We will like Prosegur Cash 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 Spanish 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.