Benchmark Electronics (NYSE:BHE) shareholders notch a 51% return over 1 year, yet earnings have been shrinking

Passive investing in index funds can generate returns that roughly match the overall market. But investors can boost returns by picking market-beating companies to own shares in. For example, the Benchmark Electronics, Inc. (NYSE:BHE) share price is up 47% in the last 1 year, clearly besting the market return of around 22% (not including dividends). If it can keep that out-performance up over the long term, investors will do very well! Having said that, the longer term returns aren't so impressive, with stock gaining just 4.5% in three years.

Since the stock has added US$62m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Benchmark Electronics

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 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 the last year, Benchmark Electronics actually saw its earnings per share drop 6.8%.

So we don't think that investors are paying too much attention to EPS. Indeed, when EPS is declining but the share price is up, it often means the market is considering other factors.

Revenue was pretty flat year on year, but maybe a closer look at the data can explain the market optimism.

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

It is of course excellent to see how Benchmark Electronics has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Benchmark Electronics stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Benchmark Electronics, it has a TSR of 51% for the last 1 year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that Benchmark Electronics shareholders have received a total shareholder return of 51% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 6%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Benchmark Electronics better, we need to consider many other factors. For instance, we've identified 2 warning signs for Benchmark Electronics that you should be aware of.

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.

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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.