Investors can buy low cost index fund if they want to receive the average market return. But across the board there are plenty of stocks that underperform the market. That's what has happened with the Zurn Elkay Water Solutions Corporation (NYSE:ZWS) share price. It's up 26% over three years, but that is below the market return. Looking at more recent returns, the stock is up 15% in a year.

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.

Check out our latest analysis for Zurn Elkay Water Solutions

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 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.

Zurn Elkay Water Solutions was able to grow its EPS at 32% per year over three years, sending the share price higher. This EPS growth is higher than the 8% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We know that Zurn Elkay Water Solutions has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Zurn Elkay Water Solutions' TSR for the last 3 years was 30%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Zurn Elkay Water Solutions shareholders are up 16% for the year (even including dividends). But that return falls short of the market. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 19% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand Zurn Elkay Water Solutions better, we need to consider many other factors. Take risks, for example - Zurn Elkay Water Solutions has 1 warning sign we think you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.