Earnings growth of 27% over 1 year hasn't been enough to translate into positive returns for Sleep Number (NASDAQ:SNBR) shareholders

Investing in stocks comes with the risk that the share price will fall. Unfortunately, shareholders of Sleep Number Corporation (NASDAQ:SNBR) have suffered share price declines over the last year. In that relatively short period, the share price has plunged 59%. The silver lining (for longer term investors) is that the stock is still 27% higher than it was three years ago. Furthermore, it's down 32% in about a quarter. That's not much fun for holders.

After losing 4.4% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

See our latest analysis for Sleep Number

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.

During the unfortunate twelve months during which the Sleep Number share price fell, it actually saw its earnings per share (EPS) improve by 27%. It's quite possible that growth expectations may have been unreasonable in the past.

It's surprising to see the share price fall so much, despite the improved EPS. So it's well worth checking out some other metrics, too.

Sleep Number managed to grow revenue over the last year, which is usually a real positive. Since the fundamental metrics don't readily explain the share price drop, there might be an opportunity if the market has overreacted.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

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

A Different Perspective

We regret to report that Sleep Number shareholders are down 59% for the year. Unfortunately, that's worse than the broader market decline of 1.1%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 9%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Sleep Number (at least 1 which is concerning) , and understanding them should be part of your investment process.

If you are like me, then you will 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 US 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.