Investors in ElringKlinger (ETR:ZIL2) have seen solid returns of 111% over the past three years

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. To wit, the ElringKlinger AG (ETR:ZIL2) share price has flown 104% in the last three years. That sort of return is as solid as granite.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

View our latest analysis for ElringKlinger

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 three years of share price growth, ElringKlinger actually saw its earnings per share (EPS) drop 58% per year. In this instance, recent extraordinary items impacted the earnings.

Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Therefore, we think it's worth considering other metrics as well.

The modest 1.6% dividend yield is unlikely to be propping up the share price. It could be that the revenue growth of 6.0% per year is viewed as evidence that ElringKlinger is growing. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

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

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

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for ElringKlinger the TSR over the last 3 years was 111%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that ElringKlinger has rewarded shareholders with a total shareholder return of 18% in the last twelve months. That's including the dividend. There's no doubt those recent returns are much better than the TSR loss of 5% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. Even so, be aware that ElringKlinger is showing 1 warning sign in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

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