The one-year returns for Squirrel Media's (BME:SQRL) shareholders have been decent, yet its earnings growth was even better

If you want to compound wealth in the stock market, you can do so by buying an index fund. But if you pick the right individual stocks, you could make more than that. For example, the Squirrel Media, S.A. (BME:SQRL) share price is up 64% in the last 1 year, clearly besting the market return of around 20% (not including dividends). That's a solid performance by our standards! In contrast, the longer term returns are negative, since the share price is 31% lower than it was three years ago.

Since the stock has added €21m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

We've discovered 2 warning signs about Squirrel Media. View them for free.

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Squirrel Media was able to grow EPS by 185% in the last twelve months. It's fair to say that the share price gain of 64% did not keep pace with the EPS growth. So it seems like the market has cooled on Squirrel Media, despite the growth. Interesting.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Squirrel Media's key metrics by checking this interactive graph of Squirrel Media's earnings, revenue and cash flow.

A Different Perspective

It's nice to see that Squirrel Media shareholders have received a total shareholder return of 64% over the last year. There's no doubt those recent returns are much better than the TSR loss of 5% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Squirrel Media (at least 1 which is potentially serious) , and understanding them should be part of your investment process.

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 Spanish 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.