Lemon Tree Hotels (NSE:LEMONTREE) shareholders are still up 536% over 5 years despite pulling back 4.4% in the past week

For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. Don't believe it? Then look at the Lemon Tree Hotels Limited (NSE:LEMONTREE) share price. It's 536% higher than it was five years ago. And this is just one example of the epic gains achieved by some long term investors. On the other hand, the stock price has retraced 4.4% in the last week. But note that the broader market is down 2.7% since last week, and this may have impacted Lemon Tree Hotels' share price. Anyone who held for that rewarding ride would probably be keen to talk about it.

Although Lemon Tree Hotels has shed ₹5.5b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Lemon Tree Hotels 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.

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 Lemon Tree Hotels 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 Lemon Tree Hotels stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

It's good to see that Lemon Tree Hotels has rewarded shareholders with a total shareholder return of 2.5% in the last twelve months. However, that falls short of the 45% TSR per annum it has made for shareholders, each year, over five years. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand Lemon Tree Hotels better, we need to consider many other factors. Take risks, for example - Lemon Tree Hotels has 1 warning sign we think you should be aware of.

Of course Lemon Tree Hotels may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.