Travel + Leisure’s (NYSE:TNL) 33% return outpaced the company’s earnings growth over the same one-year period

On average, over time, stock markets tend to rise higher. This makes investing attractive. But if you choose that path, you’re going to buy some stocks that fall short of the market. Over the last year the Travel + Leisure Co. (NYSE:TNL) share price is up 27%, but that’s less than the broader market return. On the other hand, longer term shareholders have had a tougher run, with the stock falling 19% in three years.

Since the stock has added US$146m to its market cap in the past week alone, let’s see if underlying performance has been driving long-term returns.

See our latest analysis for Travel + Leisure

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Travel + Leisure was able to grow EPS by 23% in the last twelve months. This EPS growth is reasonably close to the 27% increase in the share price. That suggests that the market sentiment around the company hasn’t changed much over that time. It looks like the share price is responding to the EPS.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Travel + Leisure has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Travel + Leisure stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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 Travel + Leisure the TSR over the last 1 year was 33%, 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

Travel + Leisure’s TSR for the year was broadly in line with the market average, at 33%. That gain looks pretty satisfying, and it is even better than the five-year TSR of 5% per year. Even if the share price growth slows down from here, there’s a good chance that this is business worth watching in the long term. 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. Consider for instance, the ever-present spectre of investment risk. We’ve identified 2 warning signs with Travel + Leisure (at least 1 which is significant) , and understanding them should be part of your investment process.

Of course Travel + Leisure may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.