For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. For example, the Eli Lilly and Company (NYSE:LLY) share price is up a whopping 593% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 17% gain in the last three months. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report. Anyone who held for that rewarding ride would probably be keen to talk about it.

Since the stock has added US$25b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for Eli Lilly

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Eli Lilly achieved compound earnings per share (EPS) growth of 19% per year. This EPS growth is slower than the share price growth of 47% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 74.10.

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

We know that Eli Lilly has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Eli Lilly, it has a TSR of 637% for the last 5 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

Eli Lilly shareholders are up 14% for the year (even including dividends). Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 49% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand Eli Lilly better, we need to consider many other factors. For example, we've discovered 2 warning signs for Eli Lilly (1 is significant!) that you should be aware of before investing here.

But note: Eli Lilly 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.