By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, the AAR Corp. (NYSE:AIR) share price is up 69% in the last three years, clearly besting the market return of around 14% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 5.2% in the last year.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

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.

During the three years of share price growth, AAR actually saw its earnings per share (EPS) drop 3.4% per year.

Based on these numbers, we think that the decline in earnings per share may not be a good representation of how the business has changed over the years. Therefore, it makes sense to look into other metrics.

It could be that the revenue growth of 12% per year is viewed as evidence that AAR is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.

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

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

AAR shareholders gained a total return of 5.2% during the year. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 7% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand AAR better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with AAR (at least 1 which is concerning) , and understanding them should be part of your investment process.

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.