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It's easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. For example, the Arch Capital Group Ltd. (NASDAQ:ACGL) share price is down 22% in the last year. That's disappointing when you consider the market returned 2.8%. Zooming out, the stock is down 19% in the last three years. It's down 46% in about a quarter. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
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).
During the unfortunate twelve months during which the Arch Capital Group 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.
The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.
Arch Capital Group 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.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
We know that Arch Capital Group has improved its bottom line lately, but what does the future have in store? This free report showing analyst forecasts should help you form a view on Arch Capital Group
A Different Perspective
While the broader market gained around 2.8% in the last year, Arch Capital Group shareholders lost 22%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 3.9%, 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. 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. Even so, be aware that Arch Capital Group is showing 2 warning signs in our investment analysis , you should know about...
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.