When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. One great example is Floor & Decor Holdings, Inc. (NYSE:FND) which saw its share price drive 172% higher over five years. We note the stock price is up 5.5% in the last seven days.

Since the stock has added US$649m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Floor & Decor Holdings achieved compound earnings per share (EPS) growth of 12% per year. This EPS growth is slower than the share price growth of 22% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 54.99.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Dive deeper into Floor & Decor Holdings' key metrics by checking this interactive graph of Floor & Decor Holdings's earnings, revenue and cash flow.

A Different Perspective

Floor & Decor Holdings shareholders are up 25% for the year. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 22% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. 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. Take risks, for example - Floor & Decor Holdings has 1 warning sign we think you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.