The simplest way to benefit from a rising market is to buy an index fund. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Constellation Brands, Inc. (NYSE:STZ) have tasted that bitter downside in the last year, as the share price dropped 32%. That’s well below the market return of 9.9%. Longer term shareholders haven’t suffered as badly, since the stock is down a comparatively less painful 21% in three years. The falls have accelerated recently, with the share price down 18% in the last three months.

Now let’s have a look at the company’s fundamentals, and see if the long term shareholder return has matched the performance of the underlying business.

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In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Unfortunately Constellation Brands reported an EPS drop of 60% for the last year. This fall in the EPS is significantly worse than the 32% the share price fall. It may have been that the weak EPS was not as bad as some had feared. With a P/E ratio of 48.11, it’s fair to say the market sees an EPS rebound on the cards.

The company’s earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here. .

Constellation Brands shareholders are down 30% for the year (even including dividends), but the market itself is up 9.9%. 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. Longer term investors wouldn’t be so upset, since they would have made 5%, 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 – Constellation Brands has 4 warning signs we think you should be aware of.