One simple way to benefit from the stock market is to buy an index fund. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at Playa Hotels & Resorts N.V. (NASDAQ:PLYA), which is up 54%, over three years, soundly beating the market return of 15% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 17% in the last year.

Since the stock has added US$66m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Playa Hotels & Resorts

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 three years of share price growth, Playa Hotels & Resorts moved from a loss to profitability. So we would expect a higher share price over the period.

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

It is of course excellent to see how Playa Hotels & Resorts has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Playa Hotels & Resorts stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

Playa Hotels & Resorts shareholders gained a total return of 17% during the year. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 1.6% over half a decade It is possible that returns will improve along with the business fundamentals. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Playa Hotels & Resorts (of which 1 is a bit concerning!) you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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

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.