Warpaint London’s (LON:W7L) investors will be pleased with their enviable 750% return over the last five years

Long term investing can be life changing when you buy and hold the truly great businesses. While not every stock performs well, when investors win, they can win big. For example, the Warpaint London PLC (LON:W7L) share price is up a whopping 622% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. In more good news, the share price has risen 10% in thirty days. But this could be related to good market conditions — stocks in its market are up 5.0% in the last month. Anyone who held for that rewarding ride would probably be keen to talk about it.

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

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While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

Over half a decade, Warpaint London managed to grow its earnings per share at 66% a year. This EPS growth is higher than the 48% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.

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

We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Warpaint London’s earnings, revenue and cash flow.

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Warpaint London, it has a TSR of 750% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!