Investors in Leonardo (BIT:LDO) have seen decent returns of 83% over the past three years

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. Just take a look at Leonardo S.p.a. (BIT:LDO), which is up 78%, over three years, soundly beating the market return of 21% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 6.7% , including dividends .

So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.

View our latest analysis for Leonardo

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Leonardo's TSR for the last 3 years was 83%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Leonardo shareholders gained a total return of 6.7% during the year. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 5% over half a decade It is possible that returns will improve along with the business fundamentals. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for Leonardo that you should be aware of before investing here.

But note: Leonardo 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 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.