Legrand (EPA:LR) jumps 5.5% this week, though earnings growth is still tracking behind three-year shareholder returns

Investors can buy low cost index fund if they want to receive the average market return. But in any diversified portfolio of stocks, you'll see some that fall short of the average. Unfortunately for shareholders, while the Legrand SA (EPA:LR) share price is up 41% in the last three years, that falls short of the market return. At least the stock price is up over the last year, albeit only by 1.4%.

Since the stock has added €1.2b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Legrand

SWOT Analysis for Legrand

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 flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During three years of share price growth, Legrand achieved compound earnings per share growth of 6.3% per year. This EPS growth is lower than the 12% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

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

We know that Legrand has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Legrand will grow revenue in the future.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Legrand, it has a TSR of 49% 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

Legrand provided a TSR of 3.4% over the last twelve months. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 7% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Is Legrand cheap compared to other companies? These 3 valuation measures might help you decide.

Of course Legrand may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.