ELQ (WSE:ELQ) soars 12% this week, taking three-year gains to 86%

By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, ELQ S.A. (WSE:ELQ) shareholders have seen the share price rise 86% over three years, well in excess of the market decline (3.9%, not including dividends).

Since the stock has added zł27m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for ELQ

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 three years of share price growth, ELQ moved from a loss to profitability. So we would expect a higher share price over the period.

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

It is of course excellent to see how ELQ has grown profits over the years, but the future is more important for shareholders. This free interactive report on ELQ's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

ELQ shareholders are down 12% for the year, but the market itself is up 6.5%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 5% over the last half decade. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand ELQ better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for ELQ (of which 2 are a bit concerning!) you should know about.

We will like ELQ better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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