While shareholders of Shelf Drilling (OB:SHLF) are in the black over 3 years, those who bought a week ago aren't so fortunate

The last three months have been tough on Shelf Drilling, Ltd. (OB:SHLF) shareholders, who have seen the share price decline a rather worrying 33%. But that doesn't change the fact that the returns over the last three years have been very strong. In fact, the share price is up a full 155% compared to three years ago. It's not uncommon to see a share price retrace a bit, after a big gain. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.

In light of the stock dropping 11% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive three-year return.

View our latest analysis for Shelf Drilling

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.

Shelf Drilling 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.

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 Shelf Drilling 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 Shelf Drilling stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

Investors in Shelf Drilling had a tough year, with a total loss of 50%, against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 4% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Shelf Drilling better, we need to consider many other factors. Even so, be aware that Shelf Drilling is showing 3 warning signs in our investment analysis , and 1 of those is a bit concerning...

Of course Shelf Drilling 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 Norwegian 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.