Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Buying shares in the best businesses can build meaningful wealth for you and your family. While the best companies are hard to find, but they can generate massive returns over long periods. Don't believe it? Then look at the Eagle Pharmaceuticals, Inc. (NASDAQ:EGRX) share price. It's 457% higher than it was five years ago. If that doesn't get you thinking about long term investing, we don't know what will. On top of that, the share price is up 30% in about a quarter.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the last half decade, Eagle Pharmaceuticals became profitable. 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 Eagle Pharmaceuticals share price is up 27% in the last three years. During the same period, EPS grew by 134% each year. This EPS growth is higher than the 8.2% 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.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It is of course excellent to see how Eagle Pharmaceuticals has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Eagle Pharmaceuticals's financial health with this free report on its balance sheet.
A Different Perspective
Investors in Eagle Pharmaceuticals had a tough year, with a total loss of 8.2%, against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 41% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Is Eagle Pharmaceuticals cheap compared to other companies? These 3 valuation measures might help you decide.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.