When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Elevance Health, Inc. (NYSE:ELV) shareholders have enjoyed a 69% share price rise over the last half decade, well in excess of the market return of around 53% (not 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.

See our latest analysis for Elevance Health

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During five years of share price growth, Elevance Health achieved compound earnings per share (EPS) growth of 10% per year. So the EPS growth rate is rather close to the annualized share price gain of 11% per year. This indicates that investor sentiment towards the company has not changed a great deal. In fact, the share price seems to largely reflect the EPS growth.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Elevance Health, it has a TSR of 79% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

Investors in Elevance Health had a tough year, with a total loss of 2.1% (including dividends), against a market gain of about 18%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 12% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you would like to research Elevance Health in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

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 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.