The simplest way to invest in stocks is to buy exchange traded funds. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Citigroup Inc. ( NYSE:C ) share price is up 43% in the last 1 year, clearly besting the market return of around 23% (not including dividends). That's a solid performance by our standards! Having said that, the longer term returns aren't so impressive, with stock gaining just 14% in three years.

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.

See our latest analysis for Citigroup

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

During the last year, Citigroup actually saw its earnings per share drop 45%.

So we don't think that investors are paying too much attention to EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

Unfortunately Citigroup's fell 3.7% over twelve months. So using a snapshot of key business metrics doesn't give us a good picture of why the market is bidding up the stock.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Citigroup is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. You can see what analysts are predicting for Citigroup in this interactive graph of future profit estimates .

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return . 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Citigroup's TSR for the last 1 year was 48%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that Citigroup has rewarded shareholders with a total shareholder return of 48% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 2% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning signwith Citigroup , and understanding them should be part of your investment process.