When we invest, we're generally looking for stocks that outperform the market average. Buying under-rated businesses is one path to excess returns. For example, the Ero Copper Corp. (TSE:ERO) share price is up 66% in the last 5 years, clearly besting the market return of around 35% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 5.5%.

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 Ero Copper

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the five years of share price growth, Ero Copper moved from a loss to profitability. That's generally thought to be a genuine positive, so investors may expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Ero Copper share price is down 1.1% in the last three years. During the same period, EPS grew by 15% each year. It would appear there's a real mismatch between the increasing EPS and the share price, which has declined -0.4% a year for three years.

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

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Ero Copper's earnings, revenue and cash flow.

A Different Perspective

Ero Copper shareholders are up 5.5% for the year. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 11% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand Ero Copper better, we need to consider many other factors. Take risks, for example - Ero Copper has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

Ero Copper is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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