H2O Innovation (CVE:HEO) shareholders have earned a 40% CAGR over the last three years

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But if you buy shares in a really great company, you can more than double your money. To wit, the H2O Innovation Inc. (CVE:HEO) share price has flown 174% in the last three years. Most would be happy with that. In contrast, the stock has fallen 8.9% in the last 30 days.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for H2O Innovation

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During three years of share price growth, H2O Innovation moved from a loss to profitability. Given the importance of this milestone, it's not overly surprising that the share price has increased strongly.

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

earnings-per-share-growth

It is of course excellent to see how H2O Innovation has grown profits over the years, but the future is more important for shareholders. This free interactive report on H2O Innovation's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

H2O Innovation shareholders are up 25% for the year. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 1.9% per year over five year. This suggests the company might be improving over time. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with H2O Innovation , and understanding them should be part of your investment process.

But note: H2O Innovation may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.