Hovnanian Enterprises' (NYSE:HOV) five-year earnings growth trails the 37% YoY shareholder returns

Buying shares in the best businesses can build meaningful wealth for you and your family. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the Hovnanian Enterprises, Inc. (NYSE:HOV) share price has soared 384% over five years. And this is just one example of the epic gains achieved by some long term investors. On top of that, the share price is up 46% in about a quarter. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report.

Since it's been a strong week for Hovnanian Enterprises shareholders, let's have a look at trend of the longer term fundamentals.

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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 five years of share price growth, Hovnanian Enterprises achieved compound earnings per share (EPS) growth of 81% per year. The EPS growth is more impressive than the yearly share price gain of 37% over the same period. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 6.35.

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

It might be well worthwhile taking a look at our free report on Hovnanian Enterprises' earnings, revenue and cash flow.

A Different Perspective

While the broader market gained around 22% in the last year, Hovnanian Enterprises shareholders lost 18%. 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 37%, 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 - Hovnanian Enterprises has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about.

But note: Hovnanian Enterprises may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.