De'Longhi (BIT:DLG) stock performs better than its underlying earnings growth over last five years

Stock pickers are generally looking for stocks that will outperform the broader market. And in our experience, buying the right stocks can give your wealth a significant boost. To wit, the De'Longhi share price has climbed 68% in five years, easily topping the market decline of 3.2% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 45%, including dividends.

Since the stock has added €440m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for De'Longhi

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.

Over half a decade, De'Longhi managed to grow its earnings per share at 9.5% a year. So the EPS growth rate is rather close to the annualized share price gain of 11% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Rather, the share price has approximately tracked EPS growth.

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

We know that De'Longhi has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of De'Longhi, it has a TSR of 90% for the last 5 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 De'Longhi shareholders have received a total shareholder return of 45% over one year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 14% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Take risks, for example - De'Longhi has 1 warning sign we think you should be aware of.

We will like De'Longhi better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.