Spacenet Enterprises India (NSE:SPCENET) pulls back 10% this week, but still delivers shareholders enviable 42% CAGR over 5 years

It's been a soft week for Spacenet Enterprises India Limited (NSE:SPCENET) shares, which are down 10%. But that does not change the realty that the stock's performance has been terrific, over five years. In fact, during that period, the share price climbed 479%. Impressive! Arguably, the recent fall is to be expected after such a strong rise. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 61% decline over the last twelve months.

Although Spacenet Enterprises India has shed ₹565m 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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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, Spacenet Enterprises India 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. In fact, the Spacenet Enterprises India stock price is 65% lower in the last three years. Meanwhile, EPS is up 63% per year. It would appear there's a real mismatch between the increasing EPS and the share price, which has declined -30% a year for three years.

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

Dive deeper into Spacenet Enterprises India's key metrics by checking this interactive graph of Spacenet Enterprises India's earnings, revenue and cash flow.

A Different Perspective

Investors in Spacenet Enterprises India had a tough year, with a total loss of 61%, against a market gain of about 7.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 42%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Spacenet Enterprises India (of which 1 is potentially serious!) you should know about.

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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.