Despite shrinking by ₹7.4b in the past week, Varroc Engineering (NSE:VARROC) shareholders are still up 118% over 3 years

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But if you buy shares in a really great company, you can more than double your money. For example, the Varroc Engineering Limited (NSE:VARROC) share price has soared 118% in the last three years. How nice for those who held the stock! On the other hand, the stock price has retraced 7.2% in the last week. But note that the broader market is down 0.8% since last week, and this may have impacted Varroc Engineering's share price.

In light of the stock dropping 7.2% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During three years of share price growth, Varroc Engineering moved from a loss to profitability. Given the importance of this milestone, it's not overly surprising that the share price has increased strongly.

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

This free interactive report on Varroc Engineering's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

It's nice to see that Varroc Engineering shareholders have received a total shareholder return of 16% over the last year. And that does include the dividend. That gain is better than the annual TSR over five years, which is 9%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Varroc Engineering better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Varroc Engineering you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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