While not a mind-blowing move, it is good to see that the Sleep Number Corporation (NASDAQ:SNBR) share price has gained 26% in the last three months. But that doesn't change the fact that the returns over the last three years have been stomach churning. Indeed, the share price is down a whopping 77% in the last three years. So it sure is nice to see a bit of an improvement. The thing to think about is whether the business has really turned around.

Although the past week has been more reassuring for shareholders, they're still in the red over the last three years, so let's see if the underlying business has been responsible for the decline.

View our latest analysis for Sleep Number

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over the three years that the share price declined, Sleep Number's earnings per share (EPS) dropped significantly, falling to a loss. Since the company has fallen to a loss making position, it's hard to compare the change in EPS with the share price change. However, we can say we'd expect to see a falling share price in this scenario.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

It's nice to see that Sleep Number shareholders have received a total shareholder return of 53% over the last year. That certainly beats the loss of about 11% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. It's always interesting to track share price performance over the longer term. But to understand Sleep Number better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Sleep Number you should know about.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.