Lloyds Banking Group's (LON:LLOY) investors will be pleased with their decent 38% return over the last three years

One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. Just take a look at Lloyds Banking Group plc (LON:LLOY), which is up 21%, over three years, soundly beating the market return of 3.4% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 15% , including dividends .

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

See our latest analysis for Lloyds Banking Group

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Lloyds Banking Group achieved compound earnings per share growth of 85% per year. This EPS growth is higher than the 7% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 6.66 also reflects the negative sentiment around the stock.

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

It's good to see that there was some significant insider buying in the last three months. That's a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. This free interactive report on Lloyds Banking Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. As it happens, Lloyds Banking Group's TSR for the last 3 years was 38%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Lloyds Banking Group shareholders have received a total shareholder return of 15% over one year. That's including the dividend. Notably the five-year annualised TSR loss of 0.6% per year compares very unfavourably with the recent share price performance. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand Lloyds Banking Group better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Lloyds Banking Group (of which 1 shouldn't be ignored!) you should know about.

Lloyds Banking Group is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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