Diodes' (NASDAQ:DIOD) five-year total shareholder returns outpace the underlying earnings growth
While Diodes Incorporated (NASDAQ:DIOD) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 25% in the last quarter. But that scarcely detracts from the really solid long term returns generated by the company over five years. Indeed, the share price is up an impressive 178% in that time. We think it's more important to dwell on the long term returns than the short term returns. Only time will tell if there is still too much optimism currently reflected in the share price.
While the stock has fallen 3.6% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.
Check out our latest analysis for Diodes
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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 five years of share price growth, Diodes achieved compound earnings per share (EPS) growth of 72% per year. This EPS growth is higher than the 23% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 11.48 also suggests market apprehension.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Diodes has improved its bottom line over the last three years, but what does the future have in store? You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
While it's never nice to take a loss, Diodes shareholders can take comfort that their trailing twelve month loss of 13% wasn't as bad as the market loss of around 19%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 23% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It's always interesting to track share price performance over the longer term. But to understand Diodes better, we need to consider many other factors. For instance, we've identified 1 warning sign for Diodes that you should be aware of.
Of course Diodes may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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.
