As an investor its worth striving to ensure your overall portfolio beats the market average. But the risk of stock picking is that you will likely buy under-performing companies. We regret to report that long term California Water Service Group (NYSE:CWT) shareholders have had that experience, with the share price dropping 16% in three years, versus a market return of about 19%.

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.

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 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.

During the unfortunate three years of share price decline, California Water Service Group actually saw its earnings per share (EPS) improve by 0.6% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

It's pretty reasonable to suspect the market was previously to bullish on the stock, and has since moderated expectations. However, taking a look at other business metrics might shed a bit more light on the share price action.

We note that, in three years, revenue has actually grown at a 3.4% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating California Water Service Group further; while we may be missing something on this analysis, there might also be an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We know that California Water Service Group has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling California Water Service Group stock, you should check out this free report showing analyst profit forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for California Water Service Group the TSR over the last 3 years was -11%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

California Water Service Group shareholders are up 6.2% for the year (even including dividends). But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 0.8% over half a decade This suggests the company might be improving over time. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for California Water Service Group you should know about.

We will like California Water Service Group 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.