The last three months have been tough on Aehr Test Systems, Inc. (NASDAQ:AEHR) shareholders, who have seen the share price decline a rather worrying 33%. But over five years returns have been remarkably great. In fact, during that period, the share price climbed 568%. Impressive! So we don’t think the recent decline in the share price means its story is a sad one. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 50% decline over the last twelve months. We love happy stories like this one. The company should be really proud of that performance!

Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

Check out our latest analysis for Aehr Test Systems

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 the last half decade, Aehr Test Systems became profitable. 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. In fact, the Aehr Test Systems stock price is 10% lower in the last three years. In the same period, EPS is up 144% per year. It would appear there’s a real mismatch between the increasing EPS and the share price, which has declined -3% a year for three years.

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

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. This free interactive report on Aehr Test Systems’ earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

While the broader market gained around 10% in the last year, Aehr Test Systems shareholders lost 50%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn’t be so upset, since they would have made 46%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It’s always interesting to track share price performance over the longer term. But to understand Aehr Test Systems better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 2 warning signs for Aehr Test Systems (of which 1 is concerning!) you should know about.