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Global Payments Inc. (NYSE:GPN) shareholders might be concerned after seeing the share price drop 12% in the last month. But that scarcely detracts from the really solid long term returns generated by the company over five years. It's fair to say most would be happy with 155% the gain in that time. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. The more important question is whether the stock is too cheap or too expensive today.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, Global Payments actually saw its EPS drop 1.5% per year.
By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
The modest 0.4% dividend yield is unlikely to be propping up the share price. In contrast revenue growth of 18% per year is probably viewed as evidence that Global Payments is growing, a real positive. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Global Payments is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Global Payments will earn in the future (free analyst consensus estimates)
A Different Perspective
Global Payments provided a TSR of 8.4% over the last twelve months. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 21% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 2 warning signs we've spotted with Global Payments .
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.
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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