If you want to compound wealth in the stock market, you can do so by buying an index fund. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Haynes International, Inc. (NASDAQ:HAYN) share price is 86% higher than it was five years ago, which is more than the market average. Zooming in, the stock is up a respectable 16% in the last year.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

View our latest analysis for Haynes International

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 the last half decade, Haynes International became profitable. That's generally thought to be a genuine positive, so investors may expect to see an increasing share price.

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

It is of course excellent to see how Haynes International has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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, Haynes International's TSR for the last 5 years was 111%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Haynes International shareholders are up 17% for the year (even including dividends). But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 16% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Haynes International , and understanding them should be part of your investment process.