It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in J&J Snack Foods Corp. (NASDAQ:JJSF) have tasted that bitter downside in the last year, as the share price dropped 13%. That falls noticeably short of the market decline of around 7.7%. Zooming out, the stock is down 11% in the last three years. The share price has dropped 13% in three months.

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.

View our latest analysis for J&J Snack Foods

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Unhappily, J&J Snack Foods had to report a 34% decline in EPS over the last year. This fall in the EPS is significantly worse than the 13% the share price fall. So the market may not be too worried about the EPS figure, at the moment -- or it may have expected earnings to drop faster. With a P/E ratio of 64.36, it's fair to say the market sees an EPS rebound on the cards.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

It's probably worth noting that the CEO is paid less than the median at similar sized 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

We regret to report that J&J Snack Foods shareholders are down 11% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 7.7%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 1.7%, 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - J&J Snack Foods has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Of course J&J Snack Foods may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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