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 Avista Corporation (NYSE:AVA) share price is up 18% in the last 1 year, clearly besting the market return of around 8.1% (not including dividends). So that should have shareholders smiling. On the other hand, longer term shareholders have had a tougher run, with the stock falling 10% in three years.

So let’s assess the underlying fundamentals over the last 1 year and see if they’ve moved in lock-step with shareholder returns.

See our latest analysis for Avista

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Avista was able to grow EPS by 2.1% in the last twelve months. The share price gain of 18% certainly outpaced the EPS growth. So it’s fair to assume the market has a higher opinion of the business than it a year ago.

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

We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on Avista’s earnings, revenue and cash flow.

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, Avista’s TSR for the last 1 year was 24%, which exceeds the share price return mentioned earlier. And there’s no prize for guessing that the dividend payments largely explain the divergence!

It’s good to see that Avista has rewarded shareholders with a total shareholder return of 24% in the last twelve months. And that does include 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. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It’s always interesting to track share price performance over the longer term. But to understand Avista better, we need to consider many other factors. Take risks, for example – Avista has 3 warning signs (and 1 which doesn’t sit too well with us) we think you should know about.