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Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. For example, the Adobe Inc. (NASDAQ:ADBE) share price is up a whopping 444% in the last half decade, a handsome return for long term holders. If that doesn't get you thinking about long term investing, we don't know what will. Meanwhile the share price is 3.0% higher than it was a week ago.
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.
Over half a decade, Adobe managed to grow its earnings per share at 52% a year. The EPS growth is more impressive than the yearly share price gain of 40% over the same period. So it seems the market isn't so enthusiastic about the stock these days. Having said that, the market is still optimistic, given the P/E ratio of 60.44.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how Adobe has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
A Different Perspective
It's nice to see that Adobe shareholders have received a total shareholder return of 60% over the last year. That's better than the annualised return of 40% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Even so, be aware that Adobe is showing 1 warning sign in our investment analysis , you should know about...
Of course Adobe may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
This article by Simply Wall St is general in nature. 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.
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