When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. For example, the Cognex Corporation (NASDAQ:CGNX) share price has soared 165% in the last half decade. Most would be very happy with that. Also pleasing for shareholders was the 19% gain in the last three months.
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 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, Cognex achieved compound earnings per share (EPS) growth of 21% per year. This EPS growth is remarkably close to the 22% 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 company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free interactive report on Cognex's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Cognex's TSR for the last 5 years was 171%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
It's nice to see that Cognex shareholders have received a total shareholder return of 18% over the last year. That's including the dividend. Having said that, the five-year TSR of 22% a year, is even better. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
We will like Cognex 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 email@example.com. 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.