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 Spirax-Sarco Engineering plc (LON:SPX) share price is up 32% in the last 5 years, clearly besting the market return of around 1.3% (ignoring dividends).

Since the long term performance has been good but there's been a recent pullback of 5.1%, let's check if the fundamentals match the share price.

View our latest analysis for Spirax-Sarco Engineering

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 five years of share price growth, Spirax-Sarco Engineering actually saw its EPS drop 3.8% per year.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We doubt the modest 1.6% dividend yield is attracting many buyers to the stock. On the other hand, Spirax-Sarco Engineering's revenue is growing nicely, at a compound rate of 8.6% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So we recommend checking out this free report showing consensus 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Spirax-Sarco Engineering the TSR over the last 5 years was 40%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.