Radiant Opto-Electronics' (TWSE:6176) 34% CAGR outpaced the company's earnings growth over the same three-year period

One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Radiant Opto-Electronics Corporation (TWSE:6176) share price is up 93% in the last three years, clearly besting the market return of around 30% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 64% in the last year, including dividends.

The past week has proven to be lucrative for Radiant Opto-Electronics investors, so let's see if fundamentals drove the company's three-year performance.

See our latest analysis for Radiant Opto-Electronics

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Radiant Opto-Electronics was able to grow its EPS at 3.4% per year over three years, sending the share price higher. This EPS growth is lower than the 25% 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 graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

This free interactive report on Radiant Opto-Electronics' earnings, revenue and cash flow 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 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 Radiant Opto-Electronics the TSR over the last 3 years was 141%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Radiant Opto-Electronics shareholders have received a total shareholder return of 64% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 18%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Radiant Opto-Electronics better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Radiant Opto-Electronics (of which 1 can't be ignored!) you should know about.

Of course Radiant Opto-Electronics 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 Taiwanese 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.