The 14% return this week takes Polimex-Mostostal's (WSE:PXM) shareholders five-year gains to 94%

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Polimex-Mostostal S.A. (WSE:PXM) shareholders have enjoyed a 94% share price rise over the last half decade, well in excess of the market return of around 59% (not including dividends).

Since it's been a strong week for Polimex-Mostostal shareholders, let's have a look at trend of the longer term fundamentals.

Check out our latest analysis for Polimex-Mostostal

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 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 five years of share price growth, Polimex-Mostostal actually saw its EPS drop 44% per year.

Essentially, it doesn't seem likely that investors are focused on EPS. Because earnings per share don't seem to match up with the share price, we'll take a look at other metrics instead.

On the other hand, Polimex-Mostostal's revenue is growing nicely, at a compound rate of 16% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).

Take a more thorough look at Polimex-Mostostal's financial health with this free report on its balance sheet.

A Different Perspective

Polimex-Mostostal shareholders are down 25% for the year, but the market itself is up 8.0%. 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. Longer term investors wouldn't be so upset, since they would have made 14%, 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 Polimex-Mostostal (of which 1 is potentially serious!) you should know about.

Of course Polimex-Mostostal 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 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.