When we invest, we're generally looking for stocks that outperform the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the freenet AG (ETR:FNTN) share price is up 44% in the last 5 years, clearly besting the market return of around 4.8% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 29%, including dividends.

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

See our latest analysis for freenet

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, freenet achieved compound earnings per share (EPS) growth of 5.1% per year. This EPS growth is lower than the 8% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that freenet has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, freenet's TSR for the last 5 years was 91%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We're pleased to report that freenet shareholders have received a total shareholder return of 29% over one year. That's including the dividend. That gain is better than the annual TSR over five years, which is 14%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand freenet better, we need to consider many other factors. For instance, we've identified 1 warning sign for freenet that you should be aware of.