The one-year decline in earnings might be taking its toll on Bread Financial Holdings (NYSE:BFH) shareholders as stock falls 5.2% over the past week

Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. To wit, the Bread Financial Holdings, Inc. (NYSE:BFH) share price is 82% higher than it was a year ago, much better than the market return of around 40% (not including dividends) in the same period. That's a solid performance by our standards! Unfortunately the longer term returns are not so good, with the stock falling 42% in the last three years.

Although Bread Financial Holdings has shed US$137m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

See our latest analysis for Bread Financial Holdings

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.

Over the last twelve months, Bread Financial Holdings actually shrank its EPS by 5.2%.

This means it's unlikely the market is judging the company based on earnings growth. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.

We doubt the modest 1.7% dividend yield is doing much to support the share price. Bread Financial Holdings' revenue actually dropped 8.4% over last year. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Bread Financial Holdings is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Bread Financial Holdings in this interactive graph of future profit estimates.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Bread Financial Holdings the TSR over the last 1 year was 87%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Bread Financial Holdings has rewarded shareholders with a total shareholder return of 87% in the last twelve months. That's including the dividend. There's no doubt those recent returns are much better than the TSR loss of 6% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It's always interesting to track share price performance over the longer term. But to understand Bread Financial Holdings better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Bread Financial Holdings (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.