Long-term investing can be life-changing if you buy and hold the truly great companies. While not every stock performs well, investors can make big profits when they win. For example the Eli Lilly and company (NYSE:LLY) The share price is up a whopping 753% over the past half decade, a nice return for long-term holders. This just shows the value creation that some companies can achieve. We are extremely pleased to see such good share price performance for investors.

With that in mind, it’s worth looking at whether the company’s underlying fundamentals have been driving its long-term performance, or whether there are any discrepancies.

Check out our latest analysis for Eli Lilly

To paraphrase Benjamin Graham: In the short run the market is a voting machine, but in the long run it is a weighing machine. 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, Eli Lilly achieved compound earnings per share (EPS) growth of 14% per year. This earnings per share growth is lower than the average annual share price increase of 54%. This suggests that market participants hold the company in higher regard today. That’s not necessarily surprising, given its five-year track record of earnings growth. This optimism is visible in the fairly high price/earnings ratio of 112.39.

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

We know Eli Lilly has improved its bottom line lately, but will sales increase? If you are interested, you can check this out free consensus revenue forecast report.

What about dividends?

In addition to measuring share price return, investors should also consider total shareholder return (TSR). The TSR includes the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. For companies that pay a generous dividend, the TSR is often a lot higher than the share price return. Coincidentally, Eli Lilly’s TSR for the last five years was 814%, which exceeds the share price return mentioned earlier. This is largely a result of the dividend payments!

A different perspective

It’s good to see that Eli Lilly has rewarded shareholders with a total shareholder return of 52% over the last twelve months. This of course includes the dividend. However, the five-year TSR is even more impressive, at 56% per year. It is always interesting to follow the price development of shares in the longer term. But to better understand Eli Lilly, we need to consider many other factors. For example, consider the ever-present specter of investment risk. We’ve identified two warning signs with Eli Lilly, and understanding it should be part of your investment process.

The story continues

We’ll like Eli Lilly more if we see some big insider buying. While we wait, take a look at this free list of undervalued stocks (usually small caps) with significant, recent insider purchasing.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.