Sleep Number (NASDAQ:SNBR) shareholders are up 15% this past week, but still in the red over the last three years

Sleep Number Corporation (NASDAQ:SNBR) shareholders should be happy to see the share price up 15% in the last week. But that doesn't change the fact that the returns over the last three years have been stomach churning. Indeed, the share price is down a whopping 75% in the last three years. So it sure is nice to see a bit of an improvement. But the more important question is whether the underlying business can justify a higher price still.

On a more encouraging note the company has added US$50m to its market cap in just the last 7 days, so let's see if we can determine what's driven the three-year loss for shareholders.

Check out our latest analysis for Sleep Number

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).

Over the three years that the share price declined, Sleep Number's earnings per share (EPS) dropped significantly, falling to a loss. Due to the loss, it's not easy to use EPS as a reliable guide to the business. However, we can say we'd expect to see a falling share price in this scenario.

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

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. It might be well worthwhile taking a look at our free report on Sleep Number's earnings, revenue and cash flow.

A Different Perspective

It's good to see that Sleep Number has rewarded shareholders with a total shareholder return of 59% in the last twelve months. There's no doubt those recent returns are much better than the TSR loss of 11% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. Take risks, for example - Sleep Number has 2 warning signs we think you should be aware of.

Sleep Number 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.

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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.