As an investor its worth striving to ensure your overall portfolio beats the market average. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term The Gym Group plc (LON:GYM) shareholders have had that experience, with the share price dropping 32% in three years, versus a market decline of about 13%.

So let’s have a look and see if the longer term performance of the company has been in line with the underlying business’ progress.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).

During five years of share price growth, Gym Group moved from a loss to profitability. We would usually expect to see the share price rise as a result. So it’s worth looking at other metrics to try to understand the share price move.

Revenue is actually up 19% over the three years, so the share price drop doesn’t seem to hinge on revenue, either. It’s probably worth investigating Gym Group further; while we may be missing something on this analysis, there might also be an opportunity.

The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free report showing analyst forecasts should help you form a view on Gym Group

We’re pleased to report that Gym Group shareholders have received a total shareholder return of 28% over one year. Notably the five-year annualised TSR loss of 0.3% per year compares very unfavourably with the recent share price performance. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. It’s always interesting to track share price performance over the longer term. But to understand Gym Group better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We’ve identified 2 warning signs with Gym Group (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.