Hovnanian Enterprises, Inc.(NYSE:HOV) shareholders might understandably be very concerned that the share price has dropped 57% in the last quarter. But in three years the returns have been great. In fact, the share price is up a full 161% compared to three years ago. To some, the recent share price pullback wouldn't be surprising after such a good run. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.

Since the long term performance has been good but there's been a recent pullback of 20%, let's check if the fundamentals match the share price.

Check out our latest analysis for Hovnanian Enterprises

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 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.

During three years of share price growth, Hovnanian Enterprises achieved compound earnings per share growth of 209% per year. This EPS growth is higher than the 38% average annual increase in the share price. So it seems investors have become more cautious about the company, over time. This cautious sentiment is reflected in its (fairly low) P/E ratio of 0.46.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).NYSE:HOV Earnings Per Share Growth May 12th 2022

It might be well worthwhile taking a look at ourfreereport on Hovnanian Enterprises' earnings, revenue and cash flow.A Different Perspective

While the broader market lost about 9.4% in the twelve months, Hovnanian Enterprises shareholders did even worse, losing 63%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. For example, we've discovered4 warning signs for Hovnanian Enterprises(2 don't sit too well with us!) that you should be aware of before investing here.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss thisfreelist 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 US 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.