AKITA Drilling (TSE:AKT.A) pulls back 12% this week, but still delivers shareholders fantastic 45% CAGR over 5 years

AKITA Drilling Ltd. (TSE:AKT.A) shareholders might be concerned after seeing the share price drop 18% in the last month. But that does not change the realty that the stock's performance has been terrific, over five years. To be precise, the stock price is 535% higher than it was five years ago, a wonderful performance by any measure. Arguably, the recent fall is to be expected after such a strong rise. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. It really delights us to see such great share price performance for investors.

While the stock has fallen 12% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

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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. 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, AKITA Drilling moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

AKITA Drilling provided a TSR of 12% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 45% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. For example, we've discovered 1 warning sign for AKITA Drilling that you should be aware of before investing here.

AKITA Drilling is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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