The 3.7% return this week takes Alsea. de's (BMV:ALSEA) shareholders five-year gains to 83%

When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Alsea, S.A.B. de C.V. (BMV:ALSEA) shareholders have enjoyed a 78% share price rise over the last half decade, well in excess of the market return of around 39% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 12% in the last year, including dividends.

The past week has proven to be lucrative for Alsea. de investors, so let's see if fundamentals drove the company's five-year performance.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 last half decade, Alsea. de became profitable. That's generally thought to be a genuine positive, so investors may expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the Alsea. de share price has gained 30% in three years. Meanwhile, EPS is up 4.2% per year. Notably, the EPS growth has been slower than the annualised share price gain of 9% over three years. So it's fair to assume the market has a higher opinion of the business than it did three years ago.

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 Alsea. de has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Alsea. de will grow revenue in the future.

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 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Alsea. de's TSR for the last 5 years was 83%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Alsea. de shareholders are up 12% for the year (even including dividends). Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 13% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. 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 example, we've discovered 1 warning sign for Alsea. de that you should be aware of before investing here.

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