It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But in contrast you can make much more than 100% if the company does well. For example, the Valmec Limited (ASX:VMX) share price has soared 111% in the last three years. That sort of return is as solid as granite. The last week saw the share price soften some 1.7%.

See our latest analysis for Valmec

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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 three years of share price growth, Valmec achieved compound earnings per share growth of 132% per year. This EPS growth is higher than the 28% average annual increase in the share price. So one could reasonably conclude that the market has cooled on the stock. We'd venture the lowish P/E ratio of 10.44 also reflects the negative sentiment around the stock.

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

It is of course excellent to see how Valmec has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Valmec stock, you should check out this FREE detailed report on its balance sheet.

What about the Total Shareholder Return (TSR)?

We've already covered Valmec's share price action, but we should also mention its total shareholder return (TSR). 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. Valmec's TSR of 111% for the 3 years exceeded its share price return, because it has paid dividends.

A Different Perspective

Valmec shareholders are up 18% for the year. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 11% over half a decade This could indicate that the company is winning over new investors, as it pursues its strategy. If you would like to research Valmec in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

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 AU exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.