Hera's (BIT:HER) investors will be pleased with their respectable 66% return over the last three years

Buying a low-cost index fund will get you the average market return. But across the board there are plenty of stocks that underperform the market. That's what has happened with the Hera S.p.A. (BIT:HER) share price. It's up 47% over three years, but that is below the market return. On the other hand, the more recent gain of 20% over a year is certainly pleasing.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During three years of share price growth, Hera achieved compound earnings per share growth of 17% per year. The average annual share price increase of 14% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time. This cautious sentiment is reflected in its (fairly low) P/E ratio of 11.00.

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 Hera has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for Hera the TSR over the last 3 years was 66%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Hera shareholders have received a total shareholder return of 24% over one year. And that does include 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. 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 instance, we've identified 2 warning signs for Hera (1 is a bit concerning) that you should be aware of.

We will like Hera 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.