When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For example, the Arch Capital Group Ltd. (NASDAQ:ACGL) share price has soared 156% in the last half decade. Most would be very happy with that. It's also good to see the share price up 10% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 6.1% in 90 days).

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.

See our latest analysis for Arch Capital Group

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During five years of share price growth, Arch Capital Group achieved compound earnings per share (EPS) growth of 36% per year. This EPS growth is higher than the 21% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.42.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Arch Capital Group's earnings, revenue and cash flow.

A Different Perspective

Arch Capital Group provided a TSR of 30% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 21% per year over five year. This could indicate that the company is winning over new investors, as it pursues its strategy. It's always interesting to track share price performance over the longer term. But to understand Arch Capital Group better, we need to consider many other factors. For instance, we've identified 1 warning sign for Arch Capital Group that you should be aware of.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.