It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But if you buy shares in a really great company, you can more than double your money. For example, the Energy Recovery, Inc. (NASDAQ:ERII) share price has soared 163% in the last three years. How nice for those who held the stock! In more good news, the share price has risen 5.9% in thirty days.

See our latest analysis for Energy Recovery

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Energy Recovery was able to grow its EPS at 22% per year over three years, sending the share price higher. This EPS growth is lower than the 38% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did three years ago. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

A Different Perspective

It's nice to see that Energy Recovery shareholders have received a total shareholder return of 154% over the last year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 19% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Energy Recovery (of which 1 makes us a bit uncomfortable!) you should know about.

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