Ferrum (WSE:FER) jumps 11% this week, though earnings growth is still tracking behind one-year shareholder returns

There's no doubt that investing in the stock market is a truly brilliant way to build wealth. But if you choose that path, you're going to buy some stocks that fall short of the market. For example, the Ferrum S.A. (WSE:FER), share price is up over the last year, but its gain of 22% trails the market return. However, the longer term returns haven't been so impressive, with the stock up just 7.0% in the last three years.

Since the stock has added zł25m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Ferrum

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During the last year Ferrum grew its earnings per share (EPS) by 14%. This EPS growth is significantly lower than the 22% increase in the share price. This indicates that the market is now more optimistic about the stock. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 87.25.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Ferrum's key metrics by checking this interactive graph of Ferrum's earnings, revenue and cash flow.

A Different Perspective

Ferrum shareholders are up 22% for the year. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 0.1% over half a decade It is possible that returns will improve along with the business fundamentals. 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. For instance, we've identified 2 warning signs for Ferrum (1 is concerning) that you should be aware of.

We will like Ferrum better if we see some big insider buys. While we wait, check out this free list of growing companies 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.