Investing in Embraer (BVMF:EMBR3) five years ago would have delivered you a 958% gain

For many, the main point of investing in the stock market is to achieve spectacular returns. And highest quality companies can see their share prices grow by huge amounts. For example, the Embraer S.A. (BVMF:EMBR3) share price is up a whopping 957% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. In more good news, the share price has risen 17% in thirty days. This could be related to the recent financial results that were recently released - you could check the most recent data by reading our company report. Anyone who held for that rewarding ride would probably be keen to talk about it.

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.

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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 the five years of share price growth, Embraer moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains.

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

It is of course excellent to see how Embraer has grown profits over the years, but the future is more important for shareholders. This free interactive report on Embraer's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

It's good to see that Embraer has rewarded shareholders with a total shareholder return of 68% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 60% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Even so, be aware that Embraer is showing 1 warning sign in our investment analysis , you should know about...

Of course Embraer 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 Brazilian 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.