Electronic Arts' (NASDAQ:EA) investors will be pleased with their favorable 68% return over the last five years

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Electronic Arts Inc. (NASDAQ:EA) share price is up 65% in the last five years, that's less than the market return. Looking at the last year alone, the stock is up 7.9%.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for Electronic Arts

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Electronic Arts achieved compound earnings per share (EPS) growth of 3.1% per year. This EPS growth is lower than the 10% 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.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Electronic Arts has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Electronic Arts will grow revenue in the future.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Electronic Arts' TSR for the last 5 years was 68%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Electronic Arts shareholders are up 8.5% for the year (even including dividends). 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 11% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. 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. Take risks, for example - Electronic Arts has 1 warning sign we think you should be aware of.

But note: Electronic Arts may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.