The 10% return this week takes Madras Fertilizers' (NSE:MADRASFERT) shareholders five-year gains to 437%

We think all investors should try to buy and hold high quality multi-year winners. And highest quality companies can see their share prices grow by huge amounts. Don't believe it? Then look at the Madras Fertilizers Limited (NSE:MADRASFERT) share price. It's 437% higher than it was five years ago. And this is just one example of the epic gains achieved by some long term investors. Better yet, the share price has risen 10% in the last week.

The past week has proven to be lucrative for Madras Fertilizers investors, so let's see if fundamentals drove the company's five-year performance.

Check out our latest analysis for Madras Fertilizers

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the last half decade, Madras Fertilizers became profitable. 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. We can see that the Madras Fertilizers share price is up 257% in the last three years. During the same period, EPS grew by 9.2% each year. This EPS growth is lower than the 53% average annual increase in the share price over three years. So one can reasonably conclude the market is more enthusiastic about the stock than it was three years ago.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

Madras Fertilizers shareholders are up 25% for the year. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 40% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. Case in point: We've spotted 3 warning signs for Madras Fertilizers you should be aware of, and 2 of them are concerning.

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are buying.

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.