For many, the main point of investing in the stock market is to achieve spectacular returns. And highest quality companies can see their share prices grow by huge amounts. Don't believe it? Then look at the West African Resources Limited (ASX:WAF) share price. It's 400% higher than it was five years ago. If that doesn't get you thinking about long term investing, we don't know what will. On top of that, the share price is up 39% in about a quarter.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

See our latest analysis for West African Resources

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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 the five years of share price growth, West African Resources moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the West African Resources share price is up 54% in the last three years. During the same period, EPS grew by 12% each year. Notably, the EPS growth has been slower than the annualised share price gain of 15% over three years. So it's fair to assume the market has a higher opinion of the business than it did three years ago.

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

Dive deeper into West African Resources' key metrics by checking this interactive graph of West African Resources's earnings, revenue and cash flow.

A Different Perspective

We're pleased to report that West African Resources shareholders have received a total shareholder return of 62% over one year. That's better than the annualised return of 38% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Case in point: We've spotted 2 warning signs for West African Resources you should be aware of, and 1 of them is a bit concerning.