Investing in Danieli & C. Officine Meccaniche (BIT:DAN) three years ago would have delivered you a 128% gain

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But when you pick a company that is really flourishing, you can make more than 100%. To wit, the Danieli & C. Officine Meccaniche S.p.A. (BIT:DAN) share price has flown 122% in the last three years. Most would be happy with that. It's also good to see the share price up 15% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 6.5% in 90 days).

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.

See our latest analysis for Danieli & C. Officine Meccaniche

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, Danieli & C. Officine Meccaniche achieved compound earnings per share growth of 62% per year. The average annual share price increase of 30% is actually lower than the EPS growth. So one could reasonably conclude that the market has cooled on the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.55.

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 Danieli & C. Officine Meccaniche has grown profits over the years, but the future is more important for shareholders. This free interactive report on Danieli & C. Officine Meccaniche's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Danieli & C. Officine Meccaniche, it has a TSR of 128% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Danieli & C. Officine Meccaniche shareholders have received a total shareholder return of 27% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 1.8%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Is Danieli & C. Officine Meccaniche cheap compared to other companies? These 3 valuation measures might help you decide.

Of course Danieli & C. Officine Meccaniche may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Italian 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.