Marks and Spencer Group's (LON:MKS) 14% CAGR outpaced the company's earnings growth over the same five-year period

When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the Marks and Spencer Group share price has climbed 92% in five years, easily topping the market return of 2.7% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 56%, including dividends.

Since the stock has added UK£273m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Marks and Spencer Group

There is no denying that markets are sometimes efficient, but prices do not always reflect 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, Marks and Spencer Group managed to grow its earnings per share at 34% a year. This EPS growth is higher than the 14% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.

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

We know that Marks and Spencer Group has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Marks and Spencer Group's balance sheet strength is a great place to start, if you want to investigate the stock further.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Marks and Spencer Group's TSR for the last 5 years was 95%, 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

It's good to see that Marks and Spencer Group has rewarded shareholders with a total shareholder return of 56% in the last twelve months. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 14%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 1 warning sign for Marks and Spencer Group you should be aware of.

We will like Marks and Spencer Group better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, 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.