Buying a low-cost index fund will get you the average market return. But in any diversified portfolio of stocks, you'll see some that fall short of the average. For example, the Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) share price return of 25% over three years lags the market return in the same period. Unfortunately, the share price has fallen 11% over twelve months.
The past week has proven to be lucrative for Ironwood Pharmaceuticals investors, so let's see if fundamentals drove the company's three-year performance.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
During three years of share price growth, Ironwood Pharmaceuticals moved from a loss to profitability. That would generally be considered a positive, so we'd expect the share price to be up.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Ironwood Pharmaceuticals has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Ironwood Pharmaceuticals' balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
The total return of 11% received by Ironwood Pharmaceuticals shareholders over the last year isn't far from the market return of -12%. Unfortunately, last year's performance is a deterioration of an already poor long term track record, given the loss of 1.4% per year over the last five years. It will probably take a substantial improvement in the fundamental performance for the company to reverse this trend. 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. Consider risks, for instance. Every company has them, and we've spotted 1 warning sign for Ironwood Pharmaceuticals you should know about.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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.
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