ZE PAK (WSE:ZEP) rallies 12% this week, taking five-year gains to 126%

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, you can make far more than 100% on a really good stock. For instance, the price of ZE PAK SA (WSE:ZEP) stock is up an impressive 126% over the last five years. It's even up 12% in the last week.

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

See our latest analysis for ZE PAK

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During the last half decade, ZE PAK became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the ZE PAK share price is up 0.6% in the last three years. Meanwhile, EPS is up 142% per year. This EPS growth is higher than the 0.2% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 1.08.

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

We know that ZE PAK 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 ZE PAK stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

While the broader market gained around 4.2% in the last year, ZE PAK shareholders lost 25%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 18% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand ZE PAK better, we need to consider many other factors. For example, we've discovered 2 warning signs for ZE PAK that you should be aware of before investing here.

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 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.