Despite the downward trend in earnings at Hrvatski Telekom d.d (ZGSE:HT) the stock lifts 3.5%, bringing five-year gains to 74%

When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, the Hrvatski Telekom d.d. (ZGSE:HT) share price is up 37% in the last 5 years, clearly besting the market return of around 22% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 21% in the last year , including dividends .

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

View our latest analysis for Hrvatski Telekom d.d

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, Hrvatski Telekom d.d actually saw its EPS drop 0.8% per year.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

The revenue reduction of 0.9% per year is not a positive. It certainly surprises us that the share price is up, but perhaps a closer examination of the data will yield answers.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. You can see what analysts are predicting for Hrvatski Telekom d.d in this interactive graph of future profit estimates.

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. As it happens, Hrvatski Telekom d.d's TSR for the last 5 years was 74%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Hrvatski Telekom d.d provided a TSR of 21% over the last twelve months. But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 12% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. It's always interesting to track share price performance over the longer term. But to understand Hrvatski Telekom d.d better, we need to consider many other factors. Take risks, for example - Hrvatski Telekom d.d has 2 warning signs we think you should be aware of.

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 Croatian 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.