Buying a low-cost index fund will get you the average market return. But in any diversified portfolio of stocks, you'll see some that fall short of the average. For example, the Steven Madden, Ltd. (NASDAQ:SHOO) share price return of 23% over three years lags the market return in the same period. Looking at more recent returns, the stock is up 15% in a year.

In light of the stock dropping 3.9% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 the last three years, Steven Madden failed to grow earnings per share, which fell 38% (annualized).

So we doubt that the market is looking to EPS for its main judge of the company's value. Therefore, we think it's worth considering other metrics as well.

The modest 1.9% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 4.7% per year is viewed as evidence that Steven Madden is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. You can see what analysts are predicting for Steven Madden in this interactive graph of future profit estimates.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Steven Madden the TSR over the last 3 years was 32%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that Steven Madden shareholders have received a total shareholder return of 18% over one year. Of course, that includes the dividend. That's better than the annualised return of 6% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Steven Madden better, we need to consider many other factors.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap companies that insiders are buying.

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