It hasn't been the best quarter for LGI Homes, Inc. (NASDAQ:LGIH) shareholders, since the share price has fallen 29% in that time. But that doesn't change the fact that the returns over the last five years have been very strong. Indeed, the share price is up an impressive 149% in that time. We think it's more important to dwell on the long term returns than the short term returns. Ultimately business performance will determine whether the stock price continues the positive long term trend.

Since the stock has added US$102m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for LGI Homes

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 five years of share price growth, LGI Homes achieved compound earnings per share (EPS) growth of 5.9% per year. This EPS growth is slower than the share price growth of 20% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth.

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

This free interactive report on LGI Homes' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

LGI Homes shareholders gained a total return of 17% during the year. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 20% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand LGI Homes better, we need to consider many other factors. For example, we've discovered 2 warning signs for LGI Homes (1 is a bit concerning!) that you should be aware of before investing here.

Of course LGI Homes may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.