Investors in Meridian Energy (NZSE:MEL) have seen decent returns of 41% over the past three years

One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. Just take a look at Meridian Energy Limited (NZSE:MEL), which is up 25%, over three years, soundly beating the market decline of 13% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 10.0%, including dividends.

So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.

Check out our latest analysis for Meridian Energy

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Meridian Energy was able to grow its EPS at 0.5% per year over three years, sending the share price higher. This EPS growth is lower than the 8% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. That's not necessarily surprising considering the three-year track record of earnings growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Meridian Energy has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Meridian Energy will grow revenue in the future.

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. We note that for Meridian Energy the TSR over the last 3 years was 41%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Meridian Energy provided a TSR of 10.0% over the year (including dividends). That's fairly close to the broader market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 7%. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 1 warning sign for Meridian Energy that you should be aware of before investing here.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.