Investors three-year returns in Palomar Holdings (NASDAQ:PLMR) have not grown faster than the company's underlying earnings growth

Palomar Holdings, Inc. (NASDAQ:PLMR) shareholders might be concerned after seeing the share price drop 26% in the last quarter. But at least the stock is up over the last three years. However, it's unlikely many shareholders are elated with the share price gain of 37% over that time, given the rising market.

Since the long term performance has been good but there's been a recent pullback of 3.6%, let's check if the fundamentals match the share price.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

During three years of share price growth, Palomar Holdings achieved compound earnings per share growth of 47% per year. The average annual share price increase of 11% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Dive deeper into the earnings by checking this interactive graph of Palomar Holdings' earnings, revenue and cash flow.

A Different Perspective

It's nice to see that Palomar Holdings shareholders have received a total shareholder return of 28% over the last year. That gain is better than the annual TSR over five years, which is 1.8%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Palomar Holdings better, we need to consider many other factors. Take risks, for example - Palomar Holdings has 1 warning sign we think you should be aware of.

Palomar Holdings is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been 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.