If you want to compound wealth in the stock market, you can do so by buying an index fund. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Hydro One Limited (TSE:H) share price is 83% higher than it was five years ago, which is more than the market average. Zooming in, the stock is up a respectable 18% in the last year.

Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholders returns.

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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.

During five years of share price growth, Hydro One actually saw its EPS drop 6.5% per year.

This means it’s unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.

On the other hand, Hydro One’s revenue is growing nicely, at a compound rate of 4.3% over the last five years. It’s quite possible that management are prioritizing revenue growth over EPS growth at the moment.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

We’re pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It’s always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So it makes a lot of sense to check out what analysts think Hydro One will earn in the future (free profit forecasts).

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Hydro One, it has a TSR of 113% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!