Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term Simulations Plus, Inc. (NASDAQ:SLP) shareholders have had that experience, with the share price dropping 41% in three years, versus a market return of about 28%. And more recent buyers are having a tough time too, with a drop of 38% in the last year. Unfortunately the share price momentum is still quite negative, with prices down 28% in thirty days.

Now let's have a look at the company's fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

See our latest analysis for Simulations Plus

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).

Simulations Plus saw its EPS decline at a compound rate of 7.3% per year, over the last three years. The share price decline of 16% is actually steeper than the EPS slippage. So it seems the market was too confident about the business, in the past. Having said that, the market is still optimistic, given the P/E ratio of 63.79.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Dive deeper into Simulations Plus' key metrics by checking this interactive graph of Simulations Plus's earnings, revenue and cash flow.

A Different Perspective

Simulations Plus shareholders are down 37% for the year, but the market itself is up 11%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 1.7% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Simulations Plus better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Simulations Plus you should be aware of.

But note: Simulations Plus 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 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.