First Merchants (NASDAQ:FRME) investors are up 4.3% in the past week, but earnings have declined over the last three years

Low-cost index funds make it easy to achieve average market returns. But if you invest in individual stocks, some are likely to underperform. For example, the First Merchants Corporation (NASDAQ:FRME) share price return of 13% over three years lags the market return in the same period. Disappointingly, the share price is down 3.9% in the last year.

Since it's been a strong week for First Merchants shareholders, let's have a look at trend of the longer term fundamentals.

Check out our latest analysis for First Merchants

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).

Over the last three years, First Merchants failed to grow earnings per share, which fell 1.5% (annualized).

While EPS is down but the share price is moving up, neither move is particularly drastic, suggesting the market was previously too pessimistic. Ultimately, though, we don't think it can maintain share price gains without turning around the EPS growth.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on First Merchants' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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 First Merchants, it has a TSR of 24% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

While it's never nice to take a loss, First Merchants shareholders can take comfort that , including dividends,their trailing twelve month loss of 1.0% wasn't as bad as the market loss of around 17%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 1.2% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. 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 risks, for instance. Every company has them, and we've spotted 1 warning sign for First Merchants you should know about.

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 US exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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