Long term investing can be life changing when you buy and hold the truly great businesses. And we've seen some truly amazing gains over the years. For example, the Optex Systems Holdings, Inc (NASDAQ:OPXS) share price is up a whopping 394% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. On the other hand, the stock price has retraced 4.8% in the last week. But this could be related to the soft market, with stocks selling off around 1.9% in the last week.

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

Check out our latest analysis for Optex Systems Holdings

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.

During the last half decade, Optex Systems Holdings became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Optex Systems Holdings share price has gained 361% in three years. Meanwhile, EPS is up 45% per year. Notably, the EPS growth has been slower than the annualised share price gain of 66% over three years. So it's fair to assume the market has a higher opinion of the business than it did three years ago.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

We're pleased to report that Optex Systems Holdings shareholders have received a total shareholder return of 94% over one year. That gain is better than the annual TSR over five years, which is 38%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with 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. For instance, we've identified 3 warning signs for Optex Systems Holdings (1 is potentially serious) that you should be aware of.