Investing in General Dynamics (NYSE:GD) a year ago would have delivered you a 35% gain

A diverse portfolio of stocks will always have winners and losers. Of course, the aim of the game is to pick stocks that do better than an index fund. General Dynamics Corporation (NYSE:GD) has done well over the last year, with the stock price up 31% beating the market return of 29% (not including dividends). The longer term returns have not been as good, with the stock price only 13% higher than it was three years ago.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

See our latest analysis for General Dynamics

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

General Dynamics was able to grow EPS by 5.7% in the last twelve months. The share price gain of 31% certainly outpaced the EPS growth. This indicates that the market is now more optimistic about the stock.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of General Dynamics, it has a TSR of 35% for the last 1 year. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that General Dynamics shareholders have received a total shareholder return of 35% over one year. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 6% 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. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for General Dynamics you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

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.

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