When we invest, we’re generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Absa Group Limited (JSE:ABG) shareholders have enjoyed a 92% share price rise over the last half decade, well in excess of the market return of around 65% (not including dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 28% in the last year, including dividends.

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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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.

Over half a decade, Absa Group managed to grow its earnings per share at 26% a year. This EPS growth is higher than the 14% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 7.12 also suggests market apprehension.

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

We know that Absa Group has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Absa Group’s TSR for the last 5 years was 168%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

Absa Group provided a TSR of 28% over the year (including dividends). That’s fairly close to the broader market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 22% per year. Even if the share price growth slows down from here, there’s a good chance that this is business worth watching in the long term. While it is well 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, we’ve discovered 1 warning sign for Absa Group that you should be aware of before investing here.