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Element Fleet Management's (TSE:EFN) 26% CAGR outpaced the company's earnings growth over the same three-year period

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By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at Element Fleet Management Corp. (TSE:EFN), which is up 87%, over three years, soundly beating the market return of 34% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 6.7% in the last year , including dividends .

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

Check out our latest analysis for Element Fleet Management

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Element Fleet Management was able to grow its EPS at 30% per year over three years, sending the share price higher. This EPS growth is higher than the 23% average annual increase in the share price. So it seems investors have become more cautious about the company, over time.

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

earnings-per-share-growth
earnings-per-share-growth

It is of course excellent to see how Element Fleet Management has grown profits over the years, but the future is more important for shareholders. This free interactive report on Element Fleet Management's balance sheet strength is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Element Fleet Management the TSR over the last 3 years was 98%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Element Fleet Management shareholders are up 6.7% for the year (even including dividends). But that return falls short of the market. On the bright side, that's still a gain, and it's actually better than the average return of 6% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. 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 Element Fleet Management that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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