Those who invested in Unipol Gruppo (BIT:UNI) three years ago are up 75%

By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Unipol Gruppo S.p.A. (BIT:UNI) share price is up 47% in the last three years, clearly besting the market return of around 31% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 1.2% in the last year , 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.

View our latest analysis for Unipol Gruppo

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 the three years of share price growth, Unipol Gruppo actually saw its earnings per share (EPS) drop 8.9% per year.

So we doubt that the market is looking to EPS for its main judge of the company's value. Therefore, we think it's worth considering other metrics as well.

We note that the dividend is higher than it was preciously, so that may have assisted the share price. Sometimes yield-chasing investors will flock to a company if they think the dividend can grow over time.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

This free interactive report on Unipol Gruppo's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Unipol Gruppo, it has a TSR of 75% 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

Unipol Gruppo shareholders gained a total return of 1.2% during the year. But that return falls short of the market. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 9% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. Even so, be aware that Unipol Gruppo is showing 1 warning sign in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.