By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at Balfour Beatty plc (LON:BBY), which is up 86%, over three years, soundly beating the market return of 0.5% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 26% in the last year, including dividends.

The past week has proven to be lucrative for Balfour Beatty investors, so let's see if fundamentals drove the company's three-year performance.

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

During three years of share price growth, Balfour Beatty achieved compound earnings per share growth of 19% per year. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 23% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Au contraire, the share price change has arguably mimicked the EPS growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).LSE:BBY Earnings Per Share Growth April 29th 2025

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. We note that for Balfour Beatty the TSR over the last 3 years was 104%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Balfour Beatty has rewarded shareholders with a total shareholder return of 26% in the last twelve months. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 15%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 risks, for instance. Every company has them, and we've spotted  1 warning sign for Balfour Beatty  you should know about.

Story Continues

Balfour Beatty is not the only stock insiders are buying. So take a peek at this freelist of small cap companies at attractive valuations which insiders have been buying.

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.

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