When you buy shares in a company, it’s worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, you can make far more than 100% on a really good stock. For example, the Mainstreet Equity Corp. (TSE:MEQ) share price has soared 186% in the last half decade. Most would be very happy with that. In the last week shares have slid back 2.0%.

With that in mind, it’s worth seeing if the company’s underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

We’ve discovered 3 warning signs about Mainstreet Equity. View them for free.

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).

During five years of share price growth, Mainstreet Equity achieved compound earnings per share (EPS) growth of 26% per year. So the EPS growth rate is rather close to the annualized share price gain of 23% per year. That suggests that the market sentiment around the company hasn’t changed much over that time. Rather, the share price has approximately tracked EPS growth.

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

We know that Mainstreet Equity has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

While the broader market gained around 11% in the last year, Mainstreet Equity shareholders lost 3.6% (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. 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. 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 3 warning signs for Mainstreet Equity (2 don’t sit too well with us!) that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: many of them are unnoticed AND have attractive valuation).