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It hasn't been the best quarter for Extreme Networks, Inc. (NASDAQ:EXTR) shareholders, since the share price has fallen 22% in that time. But don't let that distract from the very nice return generated over three years. To wit, the share price did better than an index fund, climbing 58% during that period.
In light of the stock dropping 5.9% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Extreme Networks became profitable within the last three years. So we would expect a higher share price over the period.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It is of course excellent to see how Extreme Networks has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
While the broader market lost about 12% in the twelve months, Extreme Networks shareholders did even worse, losing 18%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 0.6% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. 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. To that end, you should be aware of the 3 warning signs we've spotted with Extreme Networks .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.