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For many, the main point of investing in the stock market is to achieve spectacular returns. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held Align Technology, Inc. (NASDAQ:ALGN) shares for the last five years, while they gained 645%. If that doesn't get you thinking about long term investing, we don't know what will. Also pleasing for shareholders was the 19% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 8.1% in 90 days).
We love happy stories like this one. The company should be really proud of that performance!
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.
During five years of share price growth, Align Technology achieved compound earnings per share (EPS) growth of 26% per year. This EPS growth is lower than the 49% 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 five years ago. That's not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 105.86.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Align Technology's earnings, revenue and cash flow.
A Different Perspective
We're pleased to report that Align Technology shareholders have received a total shareholder return of 134% over one year. That's better than the annualised return of 49% 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. It's always interesting to track share price performance over the longer term. But to understand Align Technology better, we need to consider many other factors. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Align Technology you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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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