BNP Paribas (EPA:BNP) jumps 3.2% this week, though earnings growth is still tracking behind five-year shareholder returns

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, the BNP Paribas SA (EPA:BNP) share price is up 24% in the last 5 years, clearly besting the market return of around 18% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 10.0% in the last year, including dividends.

The past week has proven to be lucrative for BNP Paribas investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for BNP Paribas

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 five years of share price growth, BNP Paribas achieved compound earnings per share (EPS) growth of 9.1% per year. This EPS growth is higher than the 4% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.80.

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

We know that BNP Paribas has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for BNP Paribas the TSR over the last 5 years was 59%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that BNP Paribas shareholders have received a total shareholder return of 10.0% over the last year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 10% 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 BNP Paribas better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for BNP Paribas you should know about.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on French 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.