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Is II-VI's (NASDAQ:IIVI) Share Price Gain Of 178% Well Earned?

Simply Wall St

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For instance, the price of II-VI Incorporated (NASDAQ:IIVI) stock is up an impressive 178% over the last five years. It's also good to see the share price up 21% over the last quarter. But this could be related to the strong market, which is up 11% in the last three months.

View our latest analysis for II-VI

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, II-VI achieved compound earnings per share (EPS) growth of 19% per year. This EPS growth is reasonably close to the 23% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. In fact, the share price seems to largely reflect the EPS growth.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

NasdaqGS:IIVI Past and Future Earnings, April 10th 2019

We know that II-VI has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.

A Different Perspective

While the broader market gained around 9.4% in the last year, II-VI shareholders lost 8.4%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 23%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. If you would like to research II-VI in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

If you are like me, then you will not want to miss this free list of growing companies that insiders are 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 editorial-team@simplywallst.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.