Arca Continental. de's (BMV:AC) investors will be pleased with their impressive 133% return over the last five years

Stock pickers are generally looking for stocks that will outperform the broader market. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Arca Continental, S.A.B. de C.V. (BMV:AC) share price is up 87% in the last 5 years, clearly besting the market return of around 40% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 10%, 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.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Arca Continental. de achieved compound earnings per share (EPS) growth of 16% per year. So the EPS growth rate is rather close to the annualized share price gain of 13% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Dive deeper into Arca Continental. de's key metrics by checking this interactive graph of Arca Continental. de's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Arca Continental. de's TSR for the last 5 years was 133%, 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

It's nice to see that Arca Continental. de shareholders have received a total shareholder return of 10% over the last year. Of course, that includes the dividend. However, that falls short of the 18% TSR per annum it has made for shareholders, each year, over five years. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Arca Continental. de better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Arca Continental. de you should know about.

We will like Arca Continental. de 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 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.