The total return for Lemon Tree Hotels (NSE:LEMONTREE) investors has risen faster than earnings growth over the last five years

Long term investing can be life changing when you buy and hold the truly great businesses. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the Lemon Tree Hotels Limited (NSE:LEMONTREE) share price has soared 682% over five years. If that doesn't get you thinking about long term investing, we don't know what will. And in the last month, the share price has gained 8.5%. It really delights us to see such great share price performance for investors.

While this past week has detracted from the company's five-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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, 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.

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

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

Although it hurts that Lemon Tree Hotels returned a loss of 2.7% in the last twelve months, the broader market was actually worse, returning a loss of 4.4%. Longer term investors wouldn't be so upset, since they would have made 51%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. 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 risks, for instance. Every company has them, and we've spotted 1 warning sign for Lemon Tree Hotels you should know about.

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.