While Solid State plc (LON:SOLI) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 20% in the last quarter. But that scarcely detracts from the really solid long term returns generated by the company over five years. We think most investors would be happy with the 162% return, over that period. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. The more important question is whether the stock is too cheap or too expensive today.

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 Solid State

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, Solid State achieved compound earnings per share (EPS) growth of 20% per year. This EPS growth is reasonably close to the 21% average annual increase in the share price. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.

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

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of Solid State's earnings, revenue and cash flow.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Solid State, it has a TSR of 187% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

While the broader market gained around 10% in the last year, Solid State shareholders lost 7.2% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 23%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 example, we've discovered 2 warning signs for Solid State (1 is a bit unpleasant!) that you should be aware of before investing here.