Investors can approximate the average market return by buying an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the Insperity, Inc. (NYSE:NSP) share price is down 22% in the last year. That's well below the market return of 25%. At least the damage isn't so bad if you look at the last three years, since the stock is down 1.0% in that time. Unfortunately the share price momentum is still quite negative, with prices down 11% in thirty days.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Unfortunately Insperity reported an EPS drop of 23% for the last year. This change in EPS is remarkably close to the 22% decrease in the share price. So it seems that the market sentiment has not changed much, despite the weak results. Rather, the share price has approximately tracked EPS 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 Insperity's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Investors in Insperity had a tough year, with a total loss of 21% (including dividends), against a market gain of about 25%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 2% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Insperity (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com