Despite shrinking by US$395m in the past week, Acadia Healthcare Company (NASDAQ:ACHC) shareholders are still up 94% over 3 years

By buying an index fund, you can roughly match the market return with ease. But if you pick the right individual stocks, you could make more than that. Just take a look at Acadia Healthcare Company, Inc. (NASDAQ:ACHC), which is up 94%, over three years, soundly beating the market return of 24% (not including dividends).

While the stock has fallen 6.2% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for Acadia Healthcare Company

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During three years of share price growth, Acadia Healthcare Company 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 below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
earnings-per-share-growth

It is of course excellent to see how Acadia Healthcare Company has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

Although it hurts that Acadia Healthcare Company returned a loss of 1.3% in the last twelve months, the broader market was actually worse, returning a loss of 20%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 7% for each year. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for Acadia Healthcare Company that you should be aware of before investing here.

But note: Acadia Healthcare Company may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.