While shareholders of SelectQuote (NYSE:SLQT) are in the black over 3 years, those who bought a week ago aren't so fortunate

SelectQuote, Inc. (NYSE:SLQT) shareholders might be concerned after seeing the share price drop 18% in the last week. But in three years the returns have been great. In three years the stock price has launched 114% higher: a great result. It's not uncommon to see a share price retrace a bit, after a big gain. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.

Since the long term performance has been good but there's been a recent pullback of 18%, 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 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).

SelectQuote became profitable within the last three years. Given the importance of this milestone, it's not overly surprising that the share price has increased strongly.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

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

A Different Perspective

While the broader market gained around 14% in the last year, SelectQuote shareholders lost 26%. 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, longer term shareholders are suffering worse, given the loss of 14% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. It's always interesting to track share price performance over the longer term. But to understand SelectQuote better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with SelectQuote (at least 2 which are a bit concerning) , and understanding them should be part of your investment process.

We will like SelectQuote better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider 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.