The total return for ITAB Shop Concept (STO:ITAB) investors has risen faster than earnings growth over the last three years

ITAB Shop Concept AB (publ) (STO:ITAB) shareholders might be concerned after seeing the share price drop 16% in the last month. 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 120% 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.

Since the long term performance has been good but there's been a recent pullback of 10%, let's check if the fundamentals match the share price.

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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 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.

ITAB Shop Concept was able to grow its EPS at 33% per year over three years, sending the share price higher. We don't think it is entirely coincidental that the EPS growth is reasonably close to the 30% average annual increase in the share price. This observation indicates that the market's attitude to the business hasn't changed all that much. Au contraire, the share price change has arguably mimicked the EPS growth.

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

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About The Total Shareholder Return (TSR)?

We've already covered ITAB Shop Concept's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Its history of dividend payouts mean that ITAB Shop Concept's TSR of 137% over the last 3 years is better than the share price return.

A Different Perspective

We regret to report that ITAB Shop Concept shareholders are down 13% for the year. Unfortunately, that's worse than the broader market decline of 1.3%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 27%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand ITAB Shop Concept better, we need to consider many other factors. Take risks, for example - ITAB Shop Concept has 4 warning signs (and 1 which can't be ignored) we think you should know about.

ITAB Shop Concept is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.

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