ReadyTech Holdings Limited (ASX:RDY) shareholders might understandably be very concerned that the share price has dropped 30% in the last quarter. But at least the stock is up over the last five years. Unfortunately its return of 56% is below the market return of 85%.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

We check all companies for important risks. See what we found for ReadyTech Holdings in our free report.

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.

During five years of share price growth, ReadyTech Holdings actually saw its EPS drop 20% per year. The impact of extraordinary items on earnings, in the last year, partially explain the diversion.

Essentially, it doesn't seem likely that investors are focused on EPS. 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.

In contrast revenue growth of 25% per year is probably viewed as evidence that ReadyTech Holdings is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.

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. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. You can see what analysts are predicting for ReadyTech Holdings in this interactive graph of future profit estimates.

A Different Perspective

Investors in ReadyTech Holdings had a tough year, with a total loss of 36%, against a market gain of about 5.8%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 9% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you would like to research ReadyTech Holdings in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

We will like ReadyTech Holdings better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian 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.