It's easy to match the overall market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in Roots Corporation (TSE:ROOT) have tasted that bitter downside in the last year, as the share price dropped 25%. That contrasts poorly with the market return of 18%. Even if shareholders bought some time ago, they wouldn't be particularly happy: the stock is down 22% in three years.

So let's have a look and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for Roots

There is no denying that markets are sometimes efficient, but prices do not always reflect 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.

Unfortunately Roots reported an EPS drop of 42% for the last year. Readers should not this outcome was influenced by the impact of extraordinary items on EPS. The share price fall of 25% isn't as bad as the reduction in earnings per share. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster. Indeed, with a P/E ratio of 87.76 there is obviously some real optimism that earnings will bounce back.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. It might be well worthwhile taking a look at our free report on Roots' earnings, revenue and cash flow.

A Different Perspective

Investors in Roots had a tough year, with a total loss of 25%, against a market gain of about 18%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 0.4% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Case in point: We've spotted 3 warning signs for Roots you should be aware of.