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Investors in Biglari Holdings (NYSE:BH.A) have made a return of 25% over the past three years

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Investors can buy low cost index fund if they want to receive the average market return. But in any diversified portfolio of stocks, you'll see some that fall short of the average. For example, the Biglari Holdings Inc. (NYSE:BH.A) share price return of 25% over three years lags the market return in the same period. Zooming in, the stock is actually down 10% in the last year.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

See our latest analysis for Biglari Holdings

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 three years of share price growth, Biglari Holdings achieved compound earnings per share growth of 8.8% per year. However, extraordinary items have impacted recent EPS numbers. We note that the 8% yearly (average) share price gain isn't too far from the EPS growth rate. Coincidence? Probably not. That suggests that the market sentiment around the company hasn't changed much over that time. Rather, the share price has approximately tracked EPS growth.

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

earnings-per-share-growth
earnings-per-share-growth

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on Biglari Holdings' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Biglari Holdings shareholders are down 10% over twelve months, which isn't far from the market return of -9.8%. Over the last three years, shareholders booked a gain of 8% per year - better than the last year, that's for sure!. One might wonder whether the recent sell-off could be an opportunity. It might be worth investigating the quality of 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Biglari Holdings , and understanding them should be part of your investment process.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.