Even though Frequency Electronics (NASDAQ:FEIM) has lost US$51m market cap in last 7 days, shareholders are still up 780% over 3 years

For us, stock picking is in large part the hunt for the truly magnificent stocks. Not every pick can be a winner, but when you pick the right stock, you can win big. One bright shining star stock has been Frequency Electronics, Inc. (NASDAQ:FEIM), which is 712% higher than three years ago. It's also good to see the share price up 41% over the last quarter. We love happy stories like this one. The company should be really proud of that performance!

In light of the stock dropping 9.0% 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 three-year return.

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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 three years of share price growth, Frequency Electronics moved from a loss to profitability. Given the importance of this milestone, it's not overly surprising that the share price has increased strongly.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. 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)?

Investors should note that there's a difference between Frequency Electronics' total shareholder return (TSR) and its share price change, which we've covered above. 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. Frequency Electronics hasn't been paying dividends, but its TSR of 780% exceeds its share price return of 712%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

It's good to see that Frequency Electronics has rewarded shareholders with a total shareholder return of 181% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 44% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Take risks, for example - Frequency Electronics has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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 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.