Optimism for Harel Insurance Investments & Financial Services (TLV:HARL) has grown this past week, despite five-year decline in earnings

If you want to compound wealth in the stock market, you can do so by buying an index fund. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the Harel Insurance Investments & Financial Services Ltd (TLV:HARL) share price is 26% higher than it was five years ago, which is more than the market average. In stark contrast, the stock price has actually fallen 5.8% in the last year.

The past week has proven to be lucrative for Harel Insurance Investments & Financial Services investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for Harel Insurance Investments & Financial Services

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Harel Insurance Investments & Financial Services' earnings per share are down 4.0% per year, despite strong share price performance over five years.

Since EPS is down a bit, and the share price is up, it's probably that the market previously had some concerns about the company, but the reality has been better than feared. In the long term, though, it will be hard for the share price rises to continue without improving EPS.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Dive deeper into Harel Insurance Investments & Financial Services' key metrics by checking this interactive graph of Harel Insurance Investments & Financial Services's earnings, revenue and cash flow.

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, Harel Insurance Investments & Financial Services' TSR for the last 5 years was 46%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Harel Insurance Investments & Financial Services shareholders are down 5.8% for the year (even including dividends), but the market itself is up 1.8%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 8%, 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. 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 2 warning signs for Harel Insurance Investments & Financial Services you should be aware of.

But note: Harel Insurance Investments & Financial Services 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 Israeli 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.