In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term dotdigital Group Plc (LON:DOTD) shareholders have had that experience, with the share price dropping 48% in three years, versus a market decline of about 14%.

It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.

View our latest analysis for dotdigital Group

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the unfortunate three years of share price decline, dotdigital Group actually saw its earnings per share (EPS) improve by 0.5% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

It looks to us like the market was probably too optimistic around growth three years ago. Looking to other metrics might better explain the share price change.

With a rather small yield of just 1.1% we doubt that the stock's share price is based on its dividend. Revenue is actually up 10% over the three years, so the share price drop doesn't seem to hinge on revenue, either. It's probably worth investigating dotdigital Group further; while we may be missing something on this analysis, there might also be an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

We're pleased to report that dotdigital Group shareholders have received a total shareholder return of 4.1% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 0.2%. 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 dotdigital Group better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for dotdigital Group you should know about.