Interpump Group (BIT:IP) shareholders have earned a 5.2% CAGR over the last five years

When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Interpump Group S.p.A. (BIT:IP) shareholders have enjoyed a 25% share price rise over the last half decade, well in excess of the market decline of around 0.3% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 1.9%, including dividends.

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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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Interpump Group achieved compound earnings per share (EPS) growth of 7.4% per year. This EPS growth is higher than the 5% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Interpump Group the TSR over the last 5 years was 29%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Interpump Group shareholders are up 1.9% for the year (even including dividends). But that return falls short of the market. On the bright side, the longer term returns (running at about 5% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. Is Interpump Group cheap compared to other companies? These 3 valuation measures might help you decide.

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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.