Collegium Pharmaceutical, Inc. (NASDAQ:COLL) shareholders might be concerned after seeing the share price drop 22% in the last quarter. But that shouldn't obscure the pleasing returns achieved by shareholders over the last three years. In the last three years the share price is up, 48%: better than the market.

While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

View our latest analysis for Collegium Pharmaceutical

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).

Over the last three years, Collegium Pharmaceutical failed to grow earnings per share, which fell 2.4% (annualized).

Companies are not always focussed on EPS growth in the short term, and looking at how the share price has reacted, we don't think EPS is the most important metric for Collegium Pharmaceutical at the moment. So other metrics may hold the key to understanding what is influencing investors.

It may well be that Collegium Pharmaceutical revenue growth rate of 27% over three years has convinced shareholders to believe in a brighter future. In that case, the company may be sacrificing current earnings per share to drive growth, and maybe shareholder's faith in better days ahead will be rewarded.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Collegium Pharmaceutical has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Collegium Pharmaceutical stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

Investors in Collegium Pharmaceutical had a tough year, with a total loss of 3.8%, against a market gain of about 27%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 7% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Collegium Pharmaceutical (of which 1 is concerning!) you should know about.

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.