It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the Koppers Holdings Inc. (NYSE:KOP) share price is down 18% in the last year. That's disappointing when you consider the market returned 34%. Longer term investors have fared much better, since the share price is up 13% in three years.

Since Koppers Holdings has shed US$50m from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

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).

Unhappily, Koppers Holdings had to report a 16% decline in EPS over the last year. This proportional reduction in earnings per share isn't far from the 18% decrease in the share price. Therefore one could posit that the market has not become more concerned about the company, despite the lower EPS. Rather, the share price is remains a similar multiple of the EPS, suggesting the outlook remains the same.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

Investors in Koppers Holdings had a tough year, with a total loss of 18% (including dividends), against a market gain of about 34%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.5% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Koppers Holdings better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Koppers Holdings you should be aware of, and 1 of them is concerning.

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.

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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.