Recent 13% pullback isn't enough to hurt long-term Lyko Group (STO:LYKO A) shareholders, they're still up 118% over 5 years

It's been a soft week for Lyko Group AB (publ) (STO:LYKO A) shares, which are down 13%. But that doesn't change the fact that the returns over the last five years have been very strong. Indeed, the share price is up an impressive 118% in that time. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Ultimately business performance will determine whether the stock price continues the positive long term trend. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 22% decline over the last twelve months.

In light of the stock dropping 13% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

View our latest analysis for Lyko Group

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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the five years of share price growth, Lyko Group moved from a loss to profitability. 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. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Lyko Group share price is down 61% in the last three years. Meanwhile, EPS is up 41% per year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -27% per year.

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

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

A Different Perspective

While the broader market gained around 16% in the last year, Lyko Group shareholders lost 22%. 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 17%, 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. 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. Even so, be aware that Lyko Group is showing 1 warning sign in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.