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Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. For example, the Landsea Homes Corporation (NASDAQ:LSEA) share price is down 47% in the last year. That's disappointing when you consider the market returned 9.3%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 26% in three years. Shareholders have had an even rougher run lately, with the share price down 28% in the last 90 days.
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.
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).
Unfortunately Landsea Homes reported an EPS drop of 37% for the last year. The share price decline of 47% is actually more than the EPS drop. This suggests the EPS fall has made some shareholders more nervous about the business.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
It might be well worthwhile taking a look at our free report on Landsea Homes' earnings, revenue and cash flow.
A Different Perspective
Landsea Homes shareholders are down 47% for the year, but the market itself is up 9.3%. 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 7% 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. It's always interesting to track share price performance over the longer term. But to understand Landsea Homes better, we need to consider many other factors. For example, we've discovered 3 warning signs for Landsea Homes (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
Of course Landsea Homes may not be the best stock to buy. So you may wish to see this free collection of growth stocks.