Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. For example, long term CGI Inc. (TSE:GIB.A) shareholders have enjoyed a 59% share price rise over the last half decade, well in excess of the market return of around 43% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 9.8%, including dividends.

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

See our latest analysis for CGI

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 five years of share price growth, CGI achieved compound earnings per share (EPS) growth of 10% per year. That makes the EPS growth particularly close to the yearly share price growth of 10%. This indicates that investor sentiment towards the company has not changed a great deal. In fact, the share price seems to largely reflect the EPS growth.

The graphic below depicts how EPS has changed over time (unveil 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. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on CGI's earnings, revenue and cash flow.

A Different Perspective

CGI shareholders are up 9.8% for the year (even including dividends). But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 10% per year over five year. It is possible that returns will improve along with the business 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. Case in point: We've spotted 1 warning sign for CGI you should be aware of.

We will like CGI 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 Canadian 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.