Investing in Vidrala (BME:VID) three years ago would have delivered you a 35% gain

Buying a low-cost index fund will get you the average market return. But if you invest in individual stocks, some are likely to underperform. That's what has happened with the Vidrala, S.A. (BME:VID) share price. It's up 25% over three years, but that is below the market return. Unfortunately, the share price has fallen 6.1% over twelve months.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

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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. 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, Vidrala achieved compound earnings per share growth of 26% per year. This EPS growth is higher than the 8% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Vidrala has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Vidrala the TSR over the last 3 years was 35%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Vidrala shareholders are down 4.9% for the year (even including dividends), but the market itself is up 36%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 5% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before deciding if you like the current share price, check how Vidrala scores on 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 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.