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Passive investing in index funds can generate returns that roughly match the overall market. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Ligand Pharmaceuticals Incorporated (NASDAQ:LGND) share price is 59% higher than it was a year ago, much better than the market return of around 25% (not including dividends) in the same period. That's a solid performance by our standards! Unfortunately the longer term returns are not so good, with the stock falling 27% in the last three years.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Ligand Pharmaceuticals
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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.
Ligand Pharmaceuticals was able to grow EPS by 105% in the last twelve months. This EPS growth is significantly higher than the 59% increase in the share price. So it seems like the market has cooled on Ligand Pharmaceuticals, despite the growth. Interesting.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Ligand Pharmaceuticals' earnings, revenue and cash flow.
A Different Perspective
We're pleased to report that Ligand Pharmaceuticals shareholders have received a total shareholder return of 59% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 11% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Ligand Pharmaceuticals better, we need to consider many other factors. For instance, we've identified 2 warning signs for Ligand Pharmaceuticals that you should be aware of.