Optimism for Ligand Pharmaceuticals (NASDAQ:LGND) has grown this past week, despite one-year decline in earnings

Passive investing in index funds can generate returns that roughly match the overall market. But if you pick the right individual stocks, you could make more than that. For example, the Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) share price is up 80% in the last 1 year, clearly besting the market return of around 32% (not including dividends). So that should have shareholders smiling. In contrast, the longer term returns are negative, since the share price is 18% lower than it was three years ago.

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

View our latest analysis for Ligand Pharmaceuticals

There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

During the last year, Ligand Pharmaceuticals actually saw its earnings per share drop 0.9%.

The mild decline in EPS may be a result of the fact that the company is more focused on other aspects of the business, right now. 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.

Unfortunately Ligand Pharmaceuticals' fell 26% over twelve months. So the fundamental metrics don't provide an obvious explanation for the share price gain.

The graphic below depicts how earnings and revenue have 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. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. If you are thinking of buying or selling Ligand Pharmaceuticals stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

We're pleased to report that Ligand Pharmaceuticals shareholders have received a total shareholder return of 80% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 9% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 3 warning signs for Ligand Pharmaceuticals that you should be aware of.

Ligand Pharmaceuticals is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.