Investors in First Merchants (NASDAQ:FRME) have seen respectable returns of 39% over the past year

A diverse portfolio of stocks will always have winners and losers. Of course, in an ideal world, all your stocks would beat the market. First Merchants Corporation (NASDAQ:FRME) has done well over the last year, with the stock price up 33% beating the market return of 32% (not including dividends). Unfortunately the longer term returns are not so good, with the stock falling 14% in the last three years.

So let's assess the underlying fundamentals over the last 1 year and see if they've moved in lock-step with shareholder returns.

View our latest analysis for First Merchants

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 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).

During the last year, First Merchants actually saw its earnings per share drop 28%.

Given the share price gain, we doubt the market is measuring progress with EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.

Unfortunately First Merchants' fell 11% over twelve months. So the fundamental metrics don't provide an obvious explanation for the share price gain.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So it makes a lot of sense to check out what analysts think First Merchants will earn in the future (free profit forecasts).

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of First Merchants, it has a TSR of 39% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's good to see that First Merchants has rewarded shareholders with a total shareholder return of 39% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 3% per year), it would seem that the stock's performance has improved in recent times. 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 First Merchants better, we need to consider many other factors. For example, we've discovered 1 warning sign for First Merchants 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 American 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.