A diverse portfolio of stocks will always have winners and losers. But the goal is to pick stocks that do better than average. One such company is American Electric Power Company, Inc. (NASDAQ:AEP), which saw its share price increase 35% in the last year, slightly above the market return of around 32% (not including dividends). The longer term returns have not been as good, with the stock price only 24% higher than it was three years ago.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for American Electric Power Company

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

American Electric Power Company was able to grow EPS by 30% in the last twelve months. We note that the earnings per share growth isn't far from the share price growth (of 35%). This makes us think the market hasn't really changed its sentiment around the company, in the last year. We don't think its coincidental that the share price is growing at a similar rate to the earnings per share.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that American Electric Power Company 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 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. In the case of American Electric Power Company, it has a TSR of 41% for the last 1 year. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that American Electric Power Company shareholders have received a total shareholder return of 41% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 5%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand American Electric Power Company better, we need to consider many other factors. For example, we've discovered 3 warning signs for American Electric Power Company (1 is a bit concerning!) that you should be aware of before investing here.

We will like American Electric Power Company better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.