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Did You Participate In Any Of Teradyne's (NASDAQ:TER) Incredible 650% Return?

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Simply Wall St
·3 min read
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Long term investing can be life changing when you buy and hold the truly great businesses. 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 Teradyne, Inc. (NASDAQ:TER) share price. It's 620% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. Also pleasing for shareholders was the 60% gain in the last three months.

It really delights us to see such great share price performance for investors.

See our latest analysis for Teradyne

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 five years of share price growth, Teradyne achieved compound earnings per share (EPS) growth of 55% per year. This EPS growth is reasonably close to the 48% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. Indeed, it would appear the share price is reacting to the EPS.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

earnings-per-share-growth
earnings-per-share-growth

We know that Teradyne has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Teradyne will grow revenue in the future.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Teradyne's TSR for the last 5 years was 650%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Teradyne shareholders have received a total shareholder return of 103% over one year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 50% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Teradyne better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Teradyne you should be aware of.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.