By buying an index fund, investors can approximate the average market return. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Beiersdorf Aktiengesellschaft (ETR:BEI) share price is up 34% in the last three years, clearly besting the market decline of around 20% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 2.2%, including dividends.

While the stock has fallen 3.1% 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 Beiersdorf

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Beiersdorf was able to grow its EPS at 3.7% per year over three years, sending the share price higher. In comparison, the 10% per year gain in the share price outpaces the EPS growth. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Beiersdorf's TSR for the last 3 years was 37%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Beiersdorf provided a TSR of 2.2% over the last twelve months. But that return falls short of the market. On the bright side, the longer term returns (running at about 4% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. Is Beiersdorf cheap compared to other companies? These 3 valuation measures might help you decide.