The simplest way to invest in stocks is to buy exchange traded funds. But if you pick the right individual stocks, you could make more than that. For example, the Pure Cycle Corporation (NASDAQ:PCYO) share price is up 40% in the last 1 year, clearly besting the market return of around 34% (not including dividends). So that should have shareholders smiling. On the other hand, longer term shareholders have had a tougher run, with the stock falling 4.6% in three years.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

See our latest analysis for Pure Cycle

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 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 the last year Pure Cycle grew its earnings per share (EPS) by 147%. This EPS growth is significantly higher than the 40% increase in the share price. So it seems like the market has cooled on Pure Cycle, despite the growth. Interesting.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized 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 Pure Cycle's earnings, revenue and cash flow.

A Different Perspective

It's nice to see that Pure Cycle shareholders have received a total shareholder return of 40% over the last year. That gain is better than the annual TSR over five years, which is 2%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Pure Cycle , and understanding them should be part of your investment process.

If you are like me, then you will not want to miss this free list of undervalued small caps 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.

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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.