By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, American Woodmark Corporation (NASDAQ:AMWD) shareholders have seen the share price rise 40% over three years, well in excess of the market return (20%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 27%.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

View our latest analysis for American Woodmark

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).

During three years of share price growth, American Woodmark achieved compound earnings per share growth of 35% per year. The average annual share price increase of 12% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It is of course excellent to see how American Woodmark has grown profits over the years, but the future is more important for shareholders. This free interactive report on American Woodmark's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

American Woodmark shareholders gained a total return of 27% during the year. But that was short of the market average. The silver lining is that the gain was actually better than the average annual return of 0.3% per year over five year. This suggests the company might be improving over time. If you would like to research American Woodmark in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

For those who like to find winning investments this free list of undervalued 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 American 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.