Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. That downside risk was realized by Resource Development Group Limited (ASX:RDG) shareholders over the last year, as the share price declined 28%. That's well below the market decline of 3.3%. We wouldn't rush to judgement on Resource Development Group because we don't have a long term history to look at.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

Check out our latest analysis for Resource Development Group

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.

The last year saw Resource Development Group's EPS really take off. The rate of growth may not be sustainable, but it is still really positive. So we are surprised the share price is down. Some different data might shed some more light on the situation.

On the other hand, we're certainly perturbed by the 24% decline in Resource Development Group's revenue. If the market sees the weak revenue as jeopardising EPS, that could explain the lower share price.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

Resource Development Group shareholders are down 28% for the year, even worse than the market loss of 3.3%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. With the stock flat over the last three months, the market now seems fairly ambivalent about the business. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. 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. Even so, be aware that Resource Development Group is showing 3 warning signs in our investment analysis , and 2 of those make us uncomfortable...

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 AU 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.

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