The 17% return this week takes R.E.A. Holdings' (LON:RE.) shareholders five-year gains to 126%

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on the bright side, you can make far more than 100% on a really good stock. Long term R.E.A. Holdings plc (LON:RE.) shareholders would be well aware of this, since the stock is up 126% in five years. On top of that, the share price is up 51% in about a quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.

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

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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 five years of share price growth, R.E.A. Holdings 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. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the R.E.A. Holdings share price has gained 9.3% in three years. In the same period, EPS is up 18% per year. This EPS growth is higher than the 3.0% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 5.09.

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

We know that R.E.A. Holdings has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

A Different Perspective

We're pleased to report that R.E.A. Holdings shareholders have received a total shareholder return of 42% over one year. That's better than the annualised return of 18% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 instance, we've identified 2 warning signs for R.E.A. Holdings (1 is a bit unpleasant) that you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).

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