Gulf Keystone Petroleum (LON:GKP) pops 14% this week, taking three-year gains to 196%

By buying an index fund, investors can approximate the average market return. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Gulf Keystone Petroleum Limited (LON:GKP) shareholders have seen the share price rise 67% over three years, well in excess of the market return (0.6%, not including dividends).

Since the stock has added UK£37m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Gulf Keystone Petroleum

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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, Gulf Keystone Petroleum moved from a loss to profitability. So we would expect a higher share price over the period.

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

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

What About The Total Shareholder Return (TSR)?

We've already covered Gulf Keystone Petroleum's share price action, but we should also mention its total shareholder return (TSR). Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Gulf Keystone Petroleum's TSR of 196% for the 3 years exceeded its share price return, because it has paid dividends.

A Different Perspective

While the broader market lost about 0.5% in the twelve months, Gulf Keystone Petroleum shareholders did even worse, losing 29%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 8% per year over half a decade. 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. 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. To that end, you should learn about the 3 warning signs we've spotted with Gulf Keystone Petroleum (including 1 which is a bit concerning) .

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.