For many, the main point of investing in the stock market is to achieve spectacular returns. While not every stock performs well, when investors win, they can win big. To wit, the Hovnanian Enterprises, Inc. (NYSE:HOV) share price has soared 592% over five years. And this is just one example of the epic gains achieved by some long term investors. On top of that, the share price is up 25% in about a quarter. Anyone who held for that rewarding ride would probably be keen to talk about it.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

Check out our latest analysis for Hovnanian Enterprises

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 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.

During five years of share price growth, Hovnanian Enterprises achieved compound earnings per share (EPS) growth of 107% per year. This EPS growth is higher than the 47% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 5.33 also suggests market apprehension.

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

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

A Different Perspective

It's good to see that Hovnanian Enterprises has rewarded shareholders with a total shareholder return of 130% in the last twelve months. That's better than the annualised return of 47% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Even so, be aware that Hovnanian Enterprises is showing 2 warning signs in our investment analysis , and 1 of those is significant...

Of course Hovnanian Enterprises may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.