The 4.5% return this week takes Hafnia's (OB:HAFNI) shareholders three-year gains to 504%

It hasn't been the best quarter for Hafnia Limited (OB:HAFNI) shareholders, since the share price has fallen 20% in that time. But in three years the returns have been great. Indeed, the share price is up a very strong 298% in that time. After a run like that some may not be surprised to see prices moderate. The thing to consider is whether the underlying business is doing well enough to support the current price.

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

View our latest analysis for Hafnia

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.

Hafnia became profitable within the last three years. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.

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

We know that Hafnia has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Hafnia the TSR over the last 3 years was 504%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Hafnia shareholders gained a total return of 6.3% during the year. But that return falls short of the market. If we look back over five years, the returns are even better, coming in at 34% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand Hafnia better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Hafnia (at least 1 which shouldn't be ignored) , and understanding them should be part of your investment process.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.