Passive investing in index funds can generate returns that roughly match the overall market. But you can significantly boost your returns by picking above-average stocks. To wit, the Bread Financial Holdings, Inc. (NYSE:BFH) share price is 83% higher than it was a year ago, much better than the market return of around 38% (not including dividends) in the same period. So that should have shareholders smiling. Unfortunately the longer term returns are not so good, with the stock falling 42% in the last three years.

While the stock has fallen 4.0% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

View our latest analysis for Bread Financial Holdings

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the last year, Bread Financial Holdings actually saw its earnings per share drop 5.2%.

Given the share price gain, we doubt the market is measuring progress with 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.

We are skeptical of the suggestion that the 1.6% dividend yield would entice buyers to the stock. Unfortunately Bread Financial Holdings' fell 8.4% 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.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

Bread Financial Holdings is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So we recommend checking out this free report showing consensus forecasts

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Bread Financial Holdings' TSR for the last 1 year was 88%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!