The 9.2% return this week takes Ergomed's (LON:ERGO) shareholders five-year gains to 416%

Ergomed plc (LON:ERGO) shareholders have seen the share price descend 19% over the month. But that doesn't change the fact that the returns over the last half decade have been spectacular. In that time, the share price has soared some 416% higher! So we don't think the recent decline in the share price means its story is a sad one. Only time will tell if there is still too much optimism currently reflected in the share price.

Since it's been a strong week for Ergomed shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for Ergomed

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the five years of share price growth, Ergomed 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.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that Ergomed has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Ergomed's financial health with this free report on its balance sheet.

A Different Perspective

We regret to report that Ergomed shareholders are down 12% for the year. Unfortunately, that's worse than the broader market decline of 1.2%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 39% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Ergomed , and understanding them should be part of your investment process.

But note: Ergomed may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

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

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.