The simplest way to invest in stocks is to buy exchange traded funds. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Lloyds Banking Group plc (LON:LLOY) share price is up 31% in the last 1 year, clearly besting the market return of around 7.4% (not including dividends). So that should have shareholders smiling. The longer term returns are positive, with the share price up 25% in three years.

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

See our latest analysis for Lloyds Banking Group

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Lloyds Banking Group was able to grow EPS by 26% in the last twelve months. This EPS growth is reasonably close to the 31% increase in the share price. So this implies that investor expectations of the company have remained pretty steady. We don't think its coincidental that the share price is growing at a similar rate to the earnings per share.

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

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on Lloyds Banking Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Lloyds Banking Group the TSR over the last 1 year was 38%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Lloyds Banking Group shareholders have received a total shareholder return of 38% over the last year. Of course, that includes the dividend. That's better than the annualised return of 6% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 Lloyds Banking Group is showing 1 warning sign in our investment analysis , you should know about...

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).

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