The 17% return this week takes Gatekeeper Systems' (CVE:GSI) shareholders five-year gains to 670%

For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. To wit, the Gatekeeper Systems Inc. (CVE:GSI) share price has soared 670% over five years. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 75% gain in the last three months. Anyone who held for that rewarding ride would probably be keen to talk about it.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

See our latest analysis for Gatekeeper Systems

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Gatekeeper Systems 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. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. In fact, the Gatekeeper Systems stock price is 15% lower in the last three years. Meanwhile, EPS is up 10% per year. It would appear there's a real mismatch between the increasing EPS and the share price, which has declined -5% a year for three years.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

It's nice to see that Gatekeeper Systems shareholders have received a total shareholder return of 295% over the last year. That gain is better than the annual TSR over five years, which is 50%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Take risks, for example - Gatekeeper Systems has 1 warning sign we think you should be aware of.

We will like Gatekeeper Systems better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider 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.