Earnings grew faster than the respectable 16% CAGR delivered to Electric Power Development (TSE:9513) shareholders over the last three years

By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Electric Power Development Co., Ltd. (TSE:9513) share price is up 37% in the last three years, clearly besting the market return of around 18% (not including dividends).

While the stock has fallen 7.0% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

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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 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.

During three years of share price growth, Electric Power Development achieved compound earnings per share growth of 148% per year. This EPS growth is higher than the 11% average annual increase in the share price. 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 4.26.

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

It is of course excellent to see how Electric Power Development has grown profits over the years, but the future is more important for shareholders. This free interactive report on Electric Power Development's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Electric Power Development's TSR for the last 3 years was 54%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While it's never nice to take a loss, Electric Power Development shareholders can take comfort that , including dividends,their trailing twelve month loss of 3.3% wasn't as bad as the market loss of around 14%. Longer term investors wouldn't be so upset, since they would have made 6%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. It's always interesting to track share price performance over the longer term. But to understand Electric Power Development better, we need to consider many other factors. For instance, we've identified 2 warning signs for Electric Power Development that you should be aware of.

Of course Electric Power Development may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Japanese 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.