Paychex's (NASDAQ:PAYX) 15% CAGR outpaced the company's earnings growth over the same five-year period

The simplest way to invest in stocks is to buy exchange traded funds. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the Paychex, Inc. (NASDAQ:PAYX) share price is up 74% in the last five years, slightly above the market return. Zooming in, the stock is actually down 2.3% in the last year.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

View our latest analysis for Paychex

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Over half a decade, Paychex managed to grow its earnings per share at 9.1% a year. This EPS growth is lower than the 12% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Paychex's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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, Paychex's TSR for the last 5 years was 100%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Paychex shareholders gained a total return of 0.7% during the year. Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 15% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. Before spending more time on Paychex it might be wise to click here to see if insiders have been buying or selling shares.

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 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.