For many investors, the main point of stock picking is to generate higher returns than the overall market. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Omega Flex, Inc. (NASDAQ:OFLX) shareholders have had that experience, with the share price dropping 50% in three years, versus a market return of about 18%. And the ride hasn't got any smoother in recent times over the last year, with the price 39% lower in that time. But it's up 7.4% in the last week.

While the last three years has been tough for Omega Flex shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).

Although the share price is down over three years, Omega Flex actually managed to grow EPS by 6.4% per year in that time. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Alternatively, growth expectations may have been unreasonable in the past.

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.

The modest 1.8% dividend yield is unlikely to be guiding the market view of the stock. We note that, in three years, revenue has actually grown at a 3.5% annual rate, so that doesn't seem to be a reason to sell shares. This analysis is just perfunctory, but it might be worth researching Omega Flex more closely, as sometimes stocks fall unfairly. This could present an opportunity.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

Omega Flex shareholders are down 38% for the year (even including dividends), but the market itself is up 23%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 3%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before forming an opinion on Omega Flex you might want to consider these 3 valuation metrics.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.