Powszechny Zaklad Ubezpieczen (WSE:PZU) jumps 5.1% this week, though earnings growth is still tracking behind three-year shareholder returns

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But in contrast you can make much more than 100% if the company does well. To wit, the Powszechny Zaklad Ubezpieczen SA (WSE:PZU) share price has flown 104% in the last three years. How nice for those who held the stock! Also pleasing for shareholders was the 15% gain in the last three months.

Since the stock has added zł1.9b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Powszechny Zaklad Ubezpieczen

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Powszechny Zaklad Ubezpieczen was able to grow its EPS at 26% per year over three years, sending the share price higher. Notably, the 27% average annual share price gain matches up nicely with the EPS growth rate. This observation indicates that the market's attitude to the business hasn't changed all that much. Quite to the contrary, the share price has arguably reflected the EPS growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Powszechny Zaklad Ubezpieczen 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?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Powszechny Zaklad Ubezpieczen's TSR for the last 3 years was 155%, 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 good to see that Powszechny Zaklad Ubezpieczen has rewarded shareholders with a total shareholder return of 91% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 9%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Powszechny Zaklad Ubezpieczen (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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