Cohort (LON:CHRT) jumps 14% this week, though earnings growth is still tracking behind five-year shareholder returns

Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. To wit, the Cohort share price has climbed 32% in five years, easily topping the market decline of 10% (ignoring dividends).

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

View our latest analysis for Cohort

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Over half a decade, Cohort managed to grow its earnings per share at 8.2% a year. The EPS growth is more impressive than the yearly share price gain of 6% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.

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

We know that Cohort has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Cohort the TSR over the last 5 years was 47%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Cohort shareholders are down 5.2% for the year (even including dividends), but the market itself is up 3.7%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 8% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Cohort better, we need to consider many other factors. For example, we've discovered 1 warning sign for Cohort that you should be aware of before investing here.

But note: Cohort may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.