American Woodmark's (NASDAQ:AMWD) 12% CAGR outpaced the company's earnings growth over the same three-year period

By buying an index fund, you can roughly match the market return with ease. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. For example, the American Woodmark Corporation (NASDAQ:AMWD) share price is up 40% in the last three years, clearly besting the market return of around 17% (not including dividends).

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

See our latest analysis for American Woodmark

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).

American Woodmark was able to grow its EPS at 35% per year over three years, sending the share price higher. The average annual share price increase of 12% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.

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

It is of course excellent to see how American Woodmark has grown profits over the years, but the future is more important for shareholders. This free interactive report on American Woodmark's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

American Woodmark's TSR for the year was broadly in line with the market average, at 36%. To take a positive view, the gain is pleasing, and it sure beats annualized TSR loss of 0.3%, which was endured over half a decade. While 'turnarounds seldom turn' there are green shoots for American Woodmark. Before spending more time on American Woodmark it might be wise to click here to see if insiders have been buying or selling shares.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.