One simple way to benefit from the stock market is to buy an index fund. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Fisher & Paykel Healthcare Corporation Limited (NZSE:FPH) shareholders have seen the share price rise 74% over three years, well in excess of the market decline (0.09%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 15%, including dividends.

In light of the stock dropping 4.1% 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.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

During the three years of share price growth, Fisher & Paykel Healthcare actually saw its earnings per share (EPS) drop 0.5% per year.

Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. Therefore, it makes sense to look into other metrics.

Languishing at just 1.2%, we doubt the dividend is doing much to prop up the share price. It may well be that Fisher & Paykel Healthcare revenue growth rate of 8.8% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).

Fisher & Paykel Healthcare is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Fisher & Paykel Healthcare 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Fisher & Paykel Healthcare the TSR over the last 3 years was 83%, 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

It's nice to see that Fisher & Paykel Healthcare shareholders have received a total shareholder return of 15% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 1.0%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before spending more time on Fisher & Paykel Healthcare it might be wise to click here to see if insiders have been buying or selling shares.

We will like Fisher & Paykel Healthcare better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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

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