Ciena's (NYSE:CIEN) 21% CAGR outpaced the company's earnings growth over the same five-year period
When you buy a stock there is always a possibility that it could drop 100%. But when you pick a company that is really flourishing, you can make more than 100%. One great example is Ciena Corporation (NYSE:CIEN) which saw its share price drive 164% higher over five years. And in the last week the share price has popped 3.2%. But this could be related to the buoyant market which is up about 1.9% in a week.
The past week has proven to be lucrative for Ciena investors, so let's see if fundamentals drove the company's five-year performance.
Check out our latest analysis for Ciena
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 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, Ciena achieved compound earnings per share (EPS) growth of 91% per year. The EPS growth is more impressive than the yearly share price gain of 21% over the same period. So one could conclude that the broader market has become more cautious towards the stock.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Ciena has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
A Different Perspective
Ciena shareholders gained a total return of 29% during the year. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it's actually better than the average return of 21% over half a decade This suggests the company might be improving over time. If you would like to research Ciena in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Ciena may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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. 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.
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