For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. To wit, the NMI Holdings, Inc. (NASDAQ:NMIH) share price has soared 302% over five years. And this is just one example of the epic gains achieved by some long term investors. Unfortunately, though, the stock has dropped 7.5% over a week. This could be related to the recent financial results, released recently -- you can catch up on the most recent data by reading our company report.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the five years of share price growth, NMI Holdings moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the NMI Holdings share price is up 48% in the last three years. Meanwhile, EPS is up 47% per year. This EPS growth is higher than the 14% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 11.82.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how NMI Holdings has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at NMI Holdings' financial health with this free report on its balance sheet.
A Different Perspective
We're pleased to report that NMI Holdings shareholders have received a total shareholder return of 65% over one year. That's better than the annualised return of 32% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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 2 warning signs with NMI Holdings , and understanding them should be part of your investment process.
We will like NMI Holdings 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.
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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