Investing in Innovative Industrial Properties (NYSE:IIPR) three years ago would have delivered you a 542% gain

We think that it's fair to say that the possibility of finding fantastic multi-year winners is what motivates many investors. But when you hold the right stock for the right time period, the rewards can be truly huge. For example, the Innovative Industrial Properties, Inc. (NYSE:IIPR) share price is up a whopping 480% in the last three years, a handsome return for long term holders. It's also good to see the share price up 16% over the last quarter.

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 Innovative Industrial Properties

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

Innovative Industrial Properties was able to grow its EPS at 102% per year over three years, sending the share price higher. This EPS growth is higher than the 80% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. Of course, with a P/E ratio of 61.87, the market remains optimistic.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

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. Dive deeper into the earnings by checking this interactive graph of Innovative Industrial Properties' earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. In the case of Innovative Industrial Properties, it has a TSR of 542% for the last 3 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Pleasingly, Innovative Industrial Properties' total shareholder return last year was 90%. That includes the value of the dividend. That's better than the annualized TSR of 86% over the last three years. Given the track record of solid returns over varying time frames, it might be worth putting Innovative Industrial Properties on your watchlist. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 3 warning signs for Innovative Industrial Properties you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.

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