As Embla Medical hf (CPH:EMBLA) grows 3.7% this past week, investors may now be noticing the company's three-year earnings growth

Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term Embla Medical hf. (CPH:EMBLA) shareholders have had that experience, with the share price dropping 39% in three years, versus a market return of about 77%. Furthermore, it's down 16% in about a quarter. That's not much fun for holders.

The recent uptick of 3.7% could be a positive sign of things to come, so let's take a look at historical fundamentals.

View our latest analysis for Embla Medical hf

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 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 unfortunate three years of share price decline, Embla Medical hf actually saw its earnings per share (EPS) improve by 75% per year. Given the share price reaction, one might suspect that EPS is not a good guide to the business performance during the period (perhaps due to a one-off loss or gain). Or else the company was over-hyped in the past, and so its growth has disappointed.

Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We note that, in three years, revenue has actually grown at a 5.5% annual rate, so that doesn't seem to be a reason to sell shares. It's probably worth investigating Embla Medical hf further; while we may be missing something on this analysis, there might also be an opportunity.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Embla Medical hf has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Embla Medical hf stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

Investors in Embla Medical hf had a tough year, with a total loss of 14%, against a market gain of about 50%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Case in point: We've spotted 1 warning sign for Embla Medical hf you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com