Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term VSE Corporation (NASDAQ:VSEC) shareholders have enjoyed a 90% share price rise over the last half decade, well in excess of the market return of around 72% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 19% , including dividends .

Since the stock has added US$56m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for VSE

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 the last half decade, VSE became profitable. That would generally be considered a positive, so we'd expect the share price to be up.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It is of course excellent to see how VSE has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at VSE's financial health with this free report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for VSE the TSR over the last 5 years was 100%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

VSE shareholders are up 19% for the year (even including dividends). But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 15% per year over five year. This suggests the company might be improving over time. It's always interesting to track share price performance over the longer term. But to understand VSE better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for VSE (of which 1 is a bit concerning!) you should know about.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.