L'Oréal's (EPA:OR) investors will be pleased with their notable 85% return over the last five years

Stock pickers are generally looking for stocks that will outperform the broader market. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term L'Oréal S.A. (EPA:OR) shareholders have enjoyed a 72% share price rise over the last half decade, well in excess of the market return of around 31% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 8.4%, including dividends.

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

Check out our latest analysis for L'Oréal

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, L'Oréal achieved compound earnings per share (EPS) growth of 11% per year. This EPS growth is reasonably close to the 12% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. Indeed, it would appear the share price is reacting to the EPS.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It might be well worthwhile taking a look at our free report on L'Oréal'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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of L'Oréal, it has a TSR of 85% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that L'Oréal has rewarded shareholders with a total shareholder return of 8.4% in the last twelve months. Of course, that includes the dividend. However, that falls short of the 13% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. Is L'Oréal cheap compared to other companies? These 3 valuation measures might help you decide.

Of course L'Oréal 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com