16% earnings growth over 3 years has not materialized into gains for IDP Education (ASX:IEL) shareholders over that period

As an investor its worth striving to ensure your overall portfolio beats the market average. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term IDP Education Limited (ASX:IEL) shareholders have had that experience, with the share price dropping 51% in three years, versus a market decline of about 12%. The more recent news is of little comfort, with the share price down 43% in a year. Shareholders have had an even rougher run lately, with the share price down 16% in the last 90 days.

After losing 10% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

View our latest analysis for IDP Education

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Although the share price is down over three years, IDP Education actually managed to grow EPS by 58% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

Revenue is actually up 27% over the three years, so the share price drop doesn't seem to hinge on revenue, either. This analysis is just perfunctory, but it might be worth researching IDP Education more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So we recommend checking out this free report showing consensus forecasts

A Different Perspective

IDP Education shareholders are down 41% for the year (even including dividends), but the market itself is up 8.6%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5% per year over five years. 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. 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. For instance, we've identified 1 warning sign for IDP Education that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: most of them are flying under the radar).

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