Investors in Northern Oil and Gas (NYSE:NOG) have seen fantastic returns of 318% over the past five years

While Northern Oil and Gas, Inc. (NYSE:NOG) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 19% in the last quarter. But that doesn't change the fact that shareholders have received really good returns over the last five years. In fact, the share price is 263% higher today. To some, the recent pullback wouldn't be surprising after such a fast rise. Ultimately business performance will determine whether the stock price continues the positive long term trend.

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

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 the last half decade, Northern Oil and Gas became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.

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

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on Northern Oil and Gas' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Northern Oil and Gas' TSR for the last 5 years was 318%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Northern Oil and Gas shareholders are down 20% for the year (even including dividends), but the market itself is up 7.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 33%, 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. It's always interesting to track share price performance over the longer term. But to understand Northern Oil and Gas better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Northern Oil and Gas (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

Northern Oil and Gas is not the only stock insiders are buying. So take a peek at this free list of small cap companies at attractive valuations which insiders have been buying.

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