Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Prestige Consumer Healthcare Inc. (NYSE:PBH) share price is up 92% in the last 5 years, clearly besting the market return of around 77% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 32% in the last year.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

View our latest analysis for Prestige Consumer Healthcare

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the last half decade, Prestige Consumer Healthcare became profitable. That would generally be considered a positive, so we'd hope to see the share price to rise. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Prestige Consumer Healthcare share price is up 36% in the last three years. Meanwhile, EPS is up 5.2% per year. This EPS growth is lower than the 11% average annual increase in the share price over three years. So it's fair to assume the market has a higher opinion of the business than it did three years ago.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

We know that Prestige Consumer Healthcare has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

A Different Perspective

It's good to see that Prestige Consumer Healthcare has rewarded shareholders with a total shareholder return of 32% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 14% per year), it would seem that the stock's performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Prestige Consumer Healthcare better, we need to consider many other factors. Take risks, for example - Prestige Consumer Healthcare has 2 warning signs we think you should be aware of.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.