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Low-cost index funds make it easy to achieve average market returns. But across the board there are plenty of stocks that underperform the market. That's what has happened with the Jazz Pharmaceuticals plc (NASDAQ:JAZZ) share price. It's up 30% over three years, but that is below the market return. Zooming in, the stock is actually down 1.1% in the last year.
The past week has proven to be lucrative for Jazz Pharmaceuticals investors, so let's see if fundamentals drove the company's three-year performance.
View our latest analysis for Jazz Pharmaceuticals
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. 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.
During the three years of share price growth, Jazz Pharmaceuticals actually saw its earnings per share (EPS) drop 68% per year. In this instance, recent extraordinary items impacted the earnings.
Thus, it seems unlikely that the market is focussed on EPS growth at the moment. Given this situation, it makes sense to look at other metrics too.
It could be that the revenue growth of 15% per year is viewed as evidence that Jazz Pharmaceuticals is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.
You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image).
Jazz Pharmaceuticals is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. You can see what analysts are predicting for Jazz Pharmaceuticals in this interactive graph of future profit estimates.
A Different Perspective
While the broader market gained around 0.5% in the last year, Jazz Pharmaceuticals shareholders lost 1.1%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 1.3% per year over half a decade. 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. To that end, you should learn about the 2 warning signs we've spotted with Jazz Pharmaceuticals (including 1 which is significant) .