When you buy shares in a company, there is always a risk that the price drops to zero. But if you pick the right stock, you can make a lot more than 100%. For example, the XTEK Limited (ASX:XTE) share price has soared 235% in the last 1 year. Most would be very happy with that, especially in just one year! Also pleasing for shareholders was the 38% gain in the last three months. However, the stock hasn't done so well in the longer term, with the stock only up 11% in three years.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

View our latest analysis for XTEK

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 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).

XTEK went from making a loss to reporting a profit, in the last year.

When a company has just transitioned to profitability, earnings per share growth is not always the best way to look at the share price action.

We think that the revenue growth of 105% could have some investors interested. Many businesses do go through a phase where they have to forgo some profits to drive business development, and sometimes its for the best.

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

We know that XTEK has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling XTEK stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

It's nice to see that XTEK shareholders have received a total shareholder return of 235% over the last year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 6% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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 risks, for instance. Every company has them, and we've spotted 1 warning sign for XTEK you should know about.

But note: XTEK 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 AU exchanges.

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

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.

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