If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). To wit, the Bright Horizons Family Solutions Inc. (NYSE:BFAM) share price is 75% higher than it was a year ago, much better than the market return of around 39% (not including dividends) in the same period. If it can keep that out-performance up over the long term, investors will do very well! Zooming out, the stock is actually down 24% in the last three years.

So let's assess the underlying fundamentals over the last 1 year and see if they've moved in lock-step with shareholder returns.

View our latest analysis for Bright Horizons Family Solutions

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.

Bright Horizons Family Solutions was able to grow EPS by 56% in the last twelve months. The share price gain of 75% certainly outpaced the EPS growth. So it's fair to assume the market has a higher opinion of the business than it a year ago. The fairly generous P/E ratio of 74.16 also points to this optimism.

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

We know that Bright Horizons Family Solutions has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Bright Horizons Family Solutions' financial health with this free report on its balance sheet.

A Different Perspective

We're pleased to report that Bright Horizons Family Solutions shareholders have received a total shareholder return of 75% over one year. Notably the five-year annualised TSR loss of 1.8% per year compares very unfavourably with the recent share price performance. 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 Bright Horizons Family Solutions better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Bright Horizons Family Solutions , and understanding them should be part of your investment process.

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.