SouthGobi Resources (CVE:SGQ) pulls back 10% this week, but still delivers shareholders enviable 40% CAGR over 5 years

The SouthGobi Resources Ltd. (CVE:SGQ) share price has had a bad week, falling 10%. But over five years returns have been remarkably great. Indeed, the share price is up a whopping 430% in that time. So it might be that some shareholders are taking profits after good performance. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price.

Although SouthGobi Resources has shed CA$18m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

See our latest analysis for SouthGobi Resources

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the last half decade, SouthGobi Resources became profitable. 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.

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

It might be well worthwhile taking a look at our free report on SouthGobi Resources' earnings, revenue and cash flow.

A Different Perspective

SouthGobi Resources provided a TSR of 15% over the last twelve months. But that return falls short of the market. On the bright side, the longer term returns (running at about 40% a year, over half a decade) look better. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. 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. To that end, you should learn about the 3 warning signs we've spotted with SouthGobi Resources (including 2 which are concerning) .

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are 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.