74Software's (EPA:74SW) earnings growth rate lags the 36% CAGR delivered to shareholders

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But if you buy shares in a really great company, you can more than double your money. For instance the 74Software (EPA:74SW) share price is 120% higher than it was three years ago. Most would be happy with that. It's also good to see the share price up 35% over the last quarter.

Although 74Software has shed €108m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

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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 three years of share price growth, 74Software achieved compound earnings per share growth of 44% per year. This EPS growth is higher than the 30% average annual increase in the share price. So it seems investors have become more cautious about the company, over time.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It is of course excellent to see how 74Software has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at 74Software's financial health with this free report on its balance sheet.

What About The Total Shareholder Return (TSR)?

We've already covered 74Software's share price action, but we should also mention its total shareholder return (TSR). 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. Dividends have been really beneficial for 74Software shareholders, and that cash payout contributed to why its TSR of 152%, over the last 3 years, is better than the share price return.

A Different Perspective

We're pleased to report that 74Software shareholders have received a total shareholder return of 66% over one year. That's better than the annualised return of 20% over half a decade, implying that the company is doing better recently. 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 74Software better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with 74Software .

Of course 74Software 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.