Investing can be hard but the potential fo an individual stock to pay off big time inspires us. But when you hold the right stock for the right time period, the rewards can be truly huge. For example, the SiTime Corporation (NASDAQ:SITM) share price is up a whopping 373% in the last three years, a handsome return for long term holders. It's also good to see the share price up 27% over the last quarter.

Since the stock has added US$187m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for SiTime

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.

SiTime became profitable within the last three years. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.

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

It is of course excellent to see how SiTime has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling SiTime stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

SiTime shareholders are down 43% for the year, falling short of the market return. The market shed around 8.1%, no doubt weighing on the stock price. Investors are up over three years, booking 68% per year, much better than the more recent returns. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with SiTime (at least 1 which is significant) , and understanding them should be part of your investment process.

We will like SiTime better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.