By buying an index fund, investors can approximate the average market return. But if you pick the right individual stocks, you could make more than that. For example, Scholastic Corporation (NASDAQ:SCHL) shareholders have seen the share price rise 22% over three years, well in excess of the market return (17%, not including dividends).

Although Scholastic has shed US$60m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

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.

Scholastic became profitable within the last three years. That would generally be considered a positive, so we'd expect the share price to be up.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We know that Scholastic has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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, Scholastic's TSR for the last 3 years was 29%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Investors in Scholastic had a tough year, with a total loss of 12% (including dividends), against a market gain of about 28%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 0.1% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before spending more time on Scholastic it might be wise to click here to see if insiders have been buying or selling shares.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.