Arnoldo Mondadori Editore's (BIT:MN) three-year earnings growth trails the 21% YoY shareholder returns

By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Arnoldo Mondadori Editore S.p.A. (BIT:MN) shareholders have seen the share price rise 61% over three years, well in excess of the market decline (1.4%, not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 29% in the last year , including dividends .

Since it's been a strong week for Arnoldo Mondadori Editore shareholders, let's have a look at trend of the longer term fundamentals.

View our latest analysis for Arnoldo Mondadori Editore

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. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Arnoldo Mondadori Editore was able to grow its EPS at 34% per year over three years, sending the share price higher. The average annual share price increase of 17% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat. We'd venture the lowish P/E ratio of 9.92 also reflects the negative sentiment around the stock.

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 Arnoldo Mondadori Editore has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Arnoldo Mondadori Editore's TSR for the last 3 years was 79%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Arnoldo Mondadori Editore has rewarded shareholders with a total shareholder return of 29% in the last twelve months. That's including the dividend. That's better than the annualised return of 8% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Arnoldo Mondadori Editore better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Arnoldo Mondadori Editore .

But note: Arnoldo Mondadori Editore 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.