We believe investing is smart because history shows that stock markets go higher in the long term. But if you choose that path, you're going to buy some stocks that fall short of the market. Over the last year the Exelixis, Inc. (NASDAQ:EXEL) share price is up 23%, but that's less than the broader market return. Zooming out, the stock is actually down 3.5% in the last three years.

Since the stock has added US$318m to its market cap in the past week alone, let's see if underlying performance has been driving long-term 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.

During the last year Exelixis grew its earnings per share (EPS) by 15%. This EPS growth is significantly lower than the 23% increase in the share price. So it's fair to assume the market has a higher opinion of the business than it a year ago.

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

We know that Exelixis has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

A Different Perspective

Exelixis shareholders are up 23% for the year. But that return falls short of the market. But at least that's still a gain! Over five years the TSR has been a reduction of 0.9% per year, over five years. So this might be a sign the business has turned its fortunes around. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.