Commonwealth Bank of Australia's (ASX:CBA) 16% CAGR outpaced the company's earnings growth over the same three-year period

By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, Commonwealth Bank of Australia (ASX:CBA) shareholders have seen the share price rise 41% over three years, well in excess of the market return (22%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 19% , including dividends .

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

See our latest analysis for Commonwealth Bank of Australia

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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, Commonwealth Bank of Australia achieved compound earnings per share growth of 4.5% per year. This EPS growth is lower than the 12% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. That's not necessarily surprising considering the three-year track record of earnings growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Commonwealth Bank of Australia's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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, Commonwealth Bank of Australia's TSR for the last 3 years was 56%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Commonwealth Bank of Australia shareholders have received a total shareholder return of 19% over the last year. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 8% per year), it would seem that the stock's performance has improved in recent times. 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 Commonwealth Bank of Australia better, we need to consider many other factors. For example, we've discovered 2 warning signs for Commonwealth Bank of Australia (1 is potentially serious!) that you should be aware of before investing here.

Commonwealth Bank of Australia is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.