By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, Centrica plc (LON:CNA) shareholders have seen the share price rise 81% over three years, well in excess of the market decline (0.5%, not including dividends).

While the stock has fallen 5.9% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

Check out our latest analysis for Centrica

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During three years of share price growth, Centrica achieved compound earnings per share growth of 16% per year. This EPS growth is lower than the 22% 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 three years ago. That's not necessarily surprising considering the three-year track record of earnings growth.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on Centrica's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Centrica's TSR for the last 3 years was 94%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Investors in Centrica had a tough year, with a total loss of 23% (including dividends), against a market gain of about 14%. 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. Longer term investors wouldn't be so upset, since they would have made 11%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 4 warning signs for Centrica (2 are a bit concerning) that you should be aware of.