One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the Select Water Solutions, Inc. (NYSE:WTTR) share price is up 71% in the last three years, clearly besting the market return of around 17% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 50%, including dividends.

Although Select Water Solutions has shed US$63m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During three years of share price growth, Select Water Solutions moved from a loss to profitability. So we would expect a higher share price over the period.

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

It is of course excellent to see how Select Water Solutions has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Select Water Solutions' financial health with this free report on its balance sheet.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Select Water Solutions, it has a TSR of 80% for the last 3 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Select Water Solutions shareholders have received a total shareholder return of 50% over one year. That's including the dividend. That's better than the annualised return of 9% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Select Water Solutions better, we need to consider many other factors. Even so, be aware that Select Water Solutions is showing 2 warning signs in our investment analysis , you should know about...

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.