Passive investing in index funds can generate returns that roughly match the overall market. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the Acacia Research Corporation (NASDAQ:ACTG) share price is 75% higher than it was five years ago, which is more than the market average. Over the last year the stock price is up, albeit only a modest 1.7%.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for Acacia Research

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the five years of share price growth, Acacia Research moved from a loss to profitability. That's generally thought to be a genuine positive, so investors may expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Acacia Research share price is down 1.8% in the last three years. In the same period, EPS is up 92% per year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -0.6% per year.

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

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on Acacia Research's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Acacia Research shareholders are up 1.7% for the year. But that was short of the market average. On the bright side, the longer term returns (running at about 12% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand Acacia Research better, we need to consider many other factors. For example, we've discovered 3 warning signs for Acacia Research (2 can't be ignored!) that you should be aware of before investing here.

Acacia Research is not the only stock that insiders are buying. For those who like to find lesser know companies 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 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.