Passive investing in index funds can generate returns that roughly match the overall market. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the Cochlear Limited (ASX:COH) share price is up 55% in the last five years, slightly above the market return. In comparison, the share price is down 1.0% in a year.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 last half decade, Cochlear became profitable. That would generally be considered a positive, so we'd hope to see the share price to rise. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Cochlear share price is up 41% in the last three years. Meanwhile, EPS is up 11% per year. That makes the EPS growth rather close to the annualized share price gain of 12% over the same period. So you could reasonably conclude that investor sentiment towards the stock has remained pretty steady, over time. There's a strong correlation between the share price and EPS.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).ASX:COH Earnings Per Share Growth September 2nd 2025

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Cochlear, it has a TSR of 64% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

Story Continues

A Different Perspective

Cochlear provided a TSR of 0.5% over the last twelve months. But that was short of the market average. 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 10% over five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Cochlear by clicking this link.

Cochlear is not the only stock that insiders are buying. For those who like to find lesser know companies this freelist of growing companies with recent insider purchasing, could be just the ticket.

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

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