Check Point Software Technologies' (NASDAQ:CHKP) 14% CAGR outpaced the company's earnings growth over the same three-year period

Low-cost index funds make it easy to achieve average market returns. But if you invest in individual stocks, some are likely to underperform. That's what has happened with the Check Point Software Technologies Ltd. (NASDAQ:CHKP) share price. It's up 48% over three years, but that is below the market return. Disappointingly, the share price is down 5.5% in the last year.

The past week has proven to be lucrative for Check Point Software Technologies investors, so let's see if fundamentals drove the company's three-year performance.

View our latest analysis for Check Point Software Technologies

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Check Point Software Technologies was able to grow its EPS at 6.4% per year over three years, sending the share price higher. This EPS growth is lower than the 14% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Check Point Software Technologies' earnings, revenue and cash flow.

A Different Perspective

Although it hurts that Check Point Software Technologies returned a loss of 5.5% in the last twelve months, the broader market was actually worse, returning a loss of 12%. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. Before deciding if you like the current share price, check how Check Point Software Technologies scores on these 3 valuation metrics.

Of course Check Point Software Technologies may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.