Reece Limited (ASX:REH) shareholders might be concerned after seeing the share price drop 26% in the last quarter. On the bright side the returns have been quite good over the last half decade. After all, the share price is up a market-beating 21% in that time.

See our latest analysis for Reece

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Reece achieved compound earnings per share (EPS) growth of 7.3% per year. This EPS growth is higher than the 3.8% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days.

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

We know that Reece has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Reece's TSR for the last 5 years was 41%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

The total return of 13% received by Reece shareholders over the last year isn't far from the market return of -12%. Longer term investors wouldn't be so upset, since they would have made 7.1%, each year, over five years. If the fundamental data remains strong, and the share price is simply down on sentiment, then this could be an opportunity worth investigating. It's always interesting to track share price performance over the longer term. But to understand Reece better, we need to consider many other factors. For example, we've discovered 3 warning signs for Reece that you should be aware of before investing here.

But note: Reece may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.