By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, XPO, Inc. (NYSE:XPO) shareholders have seen the share price rise 91% over three years, well in excess of the market return (17%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 68%.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

View our latest analysis for XPO

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During three years of share price growth, XPO achieved compound earnings per share growth of 13% per year. This EPS growth is lower than the 24% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It is quite common to see investors become enamoured with a business, after a few years of solid progress. This optimism is also reflected in the fairly generous P/E ratio of 47.09.

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

We know that XPO has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

What About The Total Shareholder Return (TSR)?

We've already covered XPO's share price action, but we should also mention its 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. XPO hasn't been paying dividends, but its TSR of 221% exceeds its share price return of 91%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

We're pleased to report that XPO shareholders have received a total shareholder return of 68% over one year. That's better than the annualised return of 39% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand XPO better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for XPO you should be aware of, and 1 of them shouldn't be ignored.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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.