Earnings growth of 4.1% over 3 years hasn't been enough to translate into positive returns for First Commonwealth Financial (NYSE:FCF) shareholders

As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. Unfortunately, that's been the case for longer term First Commonwealth Financial Corporation (NYSE:FCF) shareholders, since the share price is down 10% in the last three years, falling well short of the market return of around 19%.

Since First Commonwealth Financial has shed US$54m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

See our latest analysis for First Commonwealth Financial

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Although the share price is down over three years, First Commonwealth Financial actually managed to grow EPS by 13% per year in that time. This is quite a puzzle, and suggests there might be something temporarily buoying the share price. Alternatively, growth expectations may have been unreasonable in the past.

We're actually a quite surprised to see the share price down while EPS have grown strongly. Therefore, we should look at some other metrics to try to understand why the market is disappointed.

Revenue is actually up 9.7% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating First Commonwealth Financial further; while we may be missing something on this analysis, there might also be an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. So it makes a lot of sense to check out what analysts think First Commonwealth Financial will earn in the future (free profit 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. 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 Commonwealth Financial, it has a TSR of -0.5% for the last 3 years. 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

First Commonwealth Financial shareholders are up 9.6% for the year (even including dividends). But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 5% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand First Commonwealth Financial better, we need to consider many other factors. For instance, we've identified 1 warning sign for First Commonwealth Financial that you should be aware of.

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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.