By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. For example, SPS Commerce, Inc. (NASDAQ:SPSC) shareholders have seen the share price rise 92% over three years, well in excess of the market return (39%, not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 41%.
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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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
SPS Commerce was able to grow its EPS at 73% per year over three years, sending the share price higher. The average annual share price increase of 24% is actually lower than the EPS growth. So it seems investors have become more cautious about the company, over time. Having said that, the market is still optimistic, given the P/E ratio of 64.07.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It is of course excellent to see how SPS Commerce has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at SPS Commerce's financial health with this free report on its balance sheet.
A Different Perspective
It's good to see that SPS Commerce has rewarded shareholders with a total shareholder return of 41% in the last twelve months. That's better than the annualised return of 13% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before spending more time on SPS Commerce it might be wise to click here to see if insiders have been buying or selling shares.
We will like SPS Commerce 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.
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.