BP's (LON:BP.) investors will be pleased with their respectable 73% return over the last five years

These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But you can do a lot better than that by buying good quality businesses for attractive prices. For example, the BP p.l.c. (LON:BP.) share price is up 34% in the last five years, slightly above the market return. In stark contrast, the stock price has actually fallen 13% in the last year.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

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To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, BP moved from a loss to profitability. However, it made a loss in the last twelve months, suggesting profit may be an unreliable metric at this stage. So we might find other metrics can better explain the share price movements.

We note that the dividend has not increased, so that doesn't seem to explain the increase, either. But it's reasonably likely that the 6.0% annual compound revenue growth is considered evidence that BP has plenty of growth ahead of it. In that case, the company may be sacrificing current earnings per share to drive growth.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on BP

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of BP, it has a TSR of 73% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Investors in BP had a tough year, with a total loss of 7.2% (including dividends), against a market gain of about 11%. 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. Longer term investors wouldn't be so upset, since they would have made 12%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand BP better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for BP you should know about.

BP is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been 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.