By buying an index fund, you can easily get close to the market return. But if you choose the right individual stocks, you can earn even more. Just take a look: Reunert Limited (JSE:RLO), which has risen 48% over the past three years, comfortably outperforming the market return of 9.4% (excluding dividends). However, recent returns have not been as impressive: over the past year, the stock has returned just 36% including dividends.

So let’s examine whether the company’s long-term performance is consistent with its underlying business history.

Check out our latest analysis for Reunert

To quote Buffett, “Ships will sail around the world, but the Flat Earth Society will flourish. There will continue to be huge discrepancies between price and value in the marketplace…” A flawed but reasonable way to assess how sentiment toward a company has changed is to compare earnings per share (EPS) to the share price.

During three years of share price growth, Reunert achieved an average earnings per share growth of 15% per year. We note that the annual (average) share price increase of 14% is not too far from the EPS growth rate. Coincidence? Probably not. This suggests that market sentiment toward the company has not changed much during this time. Rather, the share price has roughly followed the EPS growth.

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

It might be worth taking a look at our free Reunert earnings, sales and cash flow report.

What about dividends?

In addition to measuring the share price return, investors should also consider the total shareholder return (TSR). While 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. For companies that pay a generous dividend, the TSR is therefore often much higher than the share price return. In the case of Reunert, the TSR is 75% over the last three years. This exceeds the share price return we mentioned earlier. The dividends paid by the company have therefore in total shareholder return.

A different perspective

It’s nice to see that Reunert has rewarded shareholders with a total return of 36% over the last twelve months. And that includes the dividend. That’s better than the 11% annualised return over half a decade, meaning the company has been doing better recently. Someone with an optimistic perspective might see the recent improvement in the TSR as an indication that the business itself is getting better over time. While it’s worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, consider risks. Every company has them, and we’ve found 1 warning sign for Reunert You should know about this.

The story continues

If you would rather check out another company — one with potentially better financials — then don’t miss this free List of companies that have proven their ability to increase their earnings.

Please note that the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on South African exchanges.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.