Many investors define successful investing as beating the market average over the long term. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term Carter's, Inc. (NYSE:CRI) shareholders have had that experience, with the share price dropping 34% in three years, versus a market return of about 21%. Furthermore, it's down 14% in about a quarter. That's not much fun for holders. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

Carter's saw its EPS decline at a compound rate of 0.003% per year, over the last three years. The share price decline of 13% is actually steeper than the EPS slippage. So it's likely that the EPS decline has disappointed the market, leaving investors hesitant to buy. The less favorable sentiment is reflected in its current P/E ratio of 10.95.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Carter's has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Carter's, it has a TSR of -27% 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

Carter's provided a TSR of 13% over the last twelve months. But that was short of the market average. But at least that's still a gain! Over five years the TSR has been a reduction of 2% per year, over five years. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand Carter's better, we need to consider many other factors. To that end, you should be aware of the 2 warning signs we've spotted with Carter's .

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.