These days it's easy to simply buy an index fund, and your returns should (roughly) match the market. But you can significantly boost your returns by picking above-average stocks. For example, the The Gorman-Rupp Company (NYSE:GRC) share price is up 30% in the last 1 year, clearly besting the market return of around 20% (not including dividends). That's a solid performance by our standards! However, the longer term returns haven't been so impressive, with the stock up just 13% in the last three years.

Since the stock has added US$51m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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 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).

Gorman-Rupp was able to grow EPS by 212% in the last twelve months. It's fair to say that the share price gain of 30% did not keep pace with the EPS growth. So it seems like the market has cooled on Gorman-Rupp, despite the growth. Interesting.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Gorman-Rupp's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Gorman-Rupp 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

We're pleased to report that Gorman-Rupp shareholders have received a total shareholder return of 33% over one year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 4%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Gorman-Rupp , and understanding them should be part of your investment process.

But note: Gorman-Rupp may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.