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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. Just think about the savvy investors who held FormFactor, Inc. (NASDAQ:FORM) shares for the last five years, while they gained 454%. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 65% gain in the last three months.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During the last half decade, FormFactor became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the FormFactor share price has gained 164% in three years. Meanwhile, EPS is up 55% per year. This EPS growth is higher than the 38% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days.
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 FormFactor has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling FormFactor stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
We're pleased to report that FormFactor shareholders have received a total shareholder return of 62% over one year. That's better than the annualised return of 41% over half a decade, implying that the company is doing better recently. 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 FormFactor better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with FormFactor , and understanding them should be part of your investment process.
Of course FormFactor 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.
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.
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