Passive investing in index funds can generate returns that roughly match the overall market.  But if you pick the right individual stocks, you could make more than that.  To wit, the Bright Horizons Family Solutions Inc. (NYSE:BFAM) share price is 41% higher than it was a year ago, much better than the market return of around 23% (not including dividends) in the same period.  If it can keep that out-performance up over the long term, investors will do very well!     Unfortunately the longer term returns are not so good, with the stock falling 35% in the last three years.      

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.  

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance.  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.

Over the last twelve months, Bright Horizons Family Solutions actually shrank its EPS by 6.8%.

This means it's unlikely the market is judging the company based on earnings growth.  Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

However the year on year revenue growth of 20% would help.  We do see some companies suppress earnings in order to accelerate revenue growth.    

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

NYSE:BFAM Earnings and Revenue Growth April 14th 2024

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.   This free report showing analyst forecasts should help you form a view on Bright Horizons Family Solutions  

A Different Perspective

It's nice to see that Bright Horizons Family Solutions shareholders have received a total shareholder return of 41% over the last year.    There's no doubt those recent returns are much better than the TSR loss of 2% per year over five years.  The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future.        I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too.   Case in point: We've spotted   2 warning signs for Bright Horizons Family Solutions  you should be aware of.    

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.