Sapiens International's (NASDAQ:SPNS) three-year earnings growth trails the 8.6% YoY shareholder returns

Investors can buy low cost index fund if they want to receive the average market return. But across the board there are plenty of stocks that underperform the market. Unfortunately for shareholders, while the Sapiens International Corporation N.V. (NASDAQ:SPNS) share price is up 19% in the last three years, that falls short of the market return. Disappointingly, the share price is down 14% in the last year.

Since it's been a strong week for Sapiens International shareholders, let's have a look at trend of the longer term fundamentals.

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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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Sapiens International was able to grow its EPS at 12% per year over three years, sending the share price higher. This EPS growth is higher than the 6% average annual increase in the share price. So it seems investors have become more cautious about the company, over time.

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

We know that Sapiens International has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Sapiens International will grow revenue in the future.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Sapiens International the TSR over the last 3 years was 28%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Sapiens International shareholders are down 11% for the year (even including dividends), but the market itself is up 15%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 3% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Is Sapiens International cheap compared to other companies? These 3 valuation measures might help you decide.

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