Investors one-year returns in Eris Lifesciences (NSE:ERIS) have grown faster than the company's underlying earnings growth

There's no doubt that investing in the stock market is a truly brilliant way to build wealth. But not every stock you buy will perform as well as the overall market. Over the last year the Eris Lifesciences Limited (NSE:ERIS) share price is up 13%, but that's less than the broader market return. Longer term, the stock is up 10% in three years.

While the stock has fallen 4.9% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

Check out our latest analysis for Eris Lifesciences

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. 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.

Eris Lifesciences was able to grow EPS by 15% in the last twelve months. This EPS growth is reasonably close to the 13% increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. It makes intuitive sense that the share price and EPS would grow at similar rates.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Eris Lifesciences' earnings, revenue and cash flow.

A Different Perspective

Over the last year Eris Lifesciences shareholders have received a TSR of 14%. Unfortunately this falls short of the market return of around 24%. On the other hand, the TSR over three years was worse, at just 4% per year. This suggests the company's position is improving. If the business can justify the share price gain with improving fundamental data, then there could be more gains to come. 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. Case in point: We've spotted 1 warning sign for Eris Lifesciences you should be aware of.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies 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 IN 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.