We believe investing is smart because history shows that stock markets go higher in the long term. But not every stock you buy will perform as well as the overall market. For example, the Playa Hotels & Resorts N.V. (NASDAQ:PLYA), share price is up over the last year, but its gain of 37% trails the market return. The longer term returns have not been as good, with the stock price only 19% higher than it was three years ago.

Since the stock has added US$153m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Playa Hotels & Resorts was able to grow EPS by 97% in the last twelve months. It's fair to say that the share price gain of 37% did not keep pace with the EPS growth. Therefore, it seems the market isn't as excited about Playa Hotels & Resorts as it was before. This could be an opportunity.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Playa Hotels & Resorts has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

Playa Hotels & Resorts shareholders have received returns of 37% over twelve months, which isn't far from the general market return. Most would be happy with a gain, and it helps that the year's return is actually better than the average return over five years, which was 5%. It is possible that management foresight will bring growth well into the future, even if the share price slows down. It's always interesting to track share price performance over the longer term. But to understand Playa Hotels & Resorts better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Playa Hotels & Resorts (at least 2 which make us uncomfortable) , and understanding them should be part of your investment process.

We will like Playa Hotels & Resorts 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.