Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. To wit, the Harvey Norman Holdings share price has climbed 95% in five years, easily topping the market return of 77% (ignoring dividends). However, more recent returns haven’t been as impressive as that, with the stock returning just 8.2% in the last year, including dividends.

So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.

Check out our latest analysis for Harvey Norman Holdings

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Harvey Norman Holdings achieved compound earnings per share (EPS) growth of 1.0% per year. This EPS growth is slower than the share price growth of 14% per year, over the same period. So it’s fair to assume the market has a higher opinion of the business than it did five years ago. That’s not necessarily surprising considering the five-year track record of earnings growth.

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 Harvey Norman Holdings has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Harvey Norman Holdings will grow revenue in the future.

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Harvey Norman Holdings, it has a TSR of 165% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

It’s good to see that Harvey Norman Holdings has rewarded shareholders with a total shareholder return of 8.2% in the last twelve months. And that does include the dividend. Having said that, the five-year TSR of 22% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we’ve identified 2 warning signs for Harvey Norman Holdings that you should be aware of.