Despite the downward trend in earnings at EQL Pharma (STO:EQL) the stock jumps 10%, bringing three-year gains to 102%

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you buy shares in a really great company, you can more than double your money. For example, the EQL Pharma AB (publ) (STO:EQL) share price has soared 102% in the last three years. That sort of return is as solid as granite. It's also up 18% in about a month.

Since it's been a strong week for EQL Pharma shareholders, let's have a look at trend of the longer term fundamentals.

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While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Over the last three years, EQL Pharma failed to grow earnings per share, which fell 8.9% (annualized).

This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

It could be that the revenue growth of 3.7% per year is viewed as evidence that EQL Pharma is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

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. If you are thinking of buying or selling EQL Pharma stock, you should check out this free report showing analyst profit forecasts.

A Different Perspective

While the broader market gained around 10% in the last year, EQL Pharma shareholders lost 30%. 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 10%, 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - EQL Pharma has 2 warning signs we think you should be aware of.

EQL Pharma 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.