U.S. Markets close in 1 hr 59 mins
  • S&P 500

    4,342.18
    -7.75 (-0.18%)
     
  • Dow 30

    34,197.02
    +28.93 (+0.08%)
     
  • Nasdaq

    13,464.36
    -77.75 (-0.57%)
     
  • Russell 2000

    1,936.59
    -39.88 (-2.02%)
     
  • Crude Oil

    86.82
    -0.53 (-0.61%)
     
  • Gold

    1,793.10
    -36.60 (-2.00%)
     
  • Silver

    22.70
    -1.11 (-4.65%)
     
  • EUR/USD

    1.1148
    -0.0097 (-0.8584%)
     
  • 10-Yr Bond

    1.7920
    -0.0560 (-3.03%)
     
  • Vix

    32.65
    +0.69 (+2.16%)
     
  • GBP/USD

    1.3385
    -0.0078 (-0.5769%)
     
  • USD/JPY

    115.2090
    +0.5490 (+0.4788%)
     
  • BTC-USD

    36,233.96
    -1,746.50 (-4.60%)
     
  • CMC Crypto 200

    828.16
    +8.66 (+1.06%)
     
  • FTSE 100

    7,554.31
    +84.53 (+1.13%)
     
  • Nikkei 225

    26,170.30
    -841.00 (-3.11%)
     

Investing in Power Integrations (NASDAQ:POWI) five years ago would have delivered you a 250% gain

  • Oops!
    Something went wrong.
    Please try again later.
·3 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • POWI

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%. One great example is Power Integrations, Inc. (NASDAQ:POWI) which saw its share price drive 236% higher over five years. It's also good to see the share price up 26% over the last quarter. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for Power Integrations

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 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, Power Integrations achieved compound earnings per share (EPS) growth of 21% per year. This EPS growth is lower than the 27% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 47.95.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
earnings-per-share-growth

We know that Power Integrations has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Power Integrations' balance sheet strength 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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Power Integrations' TSR for the last 5 years was 250%, 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 Power Integrations shareholders have received a total shareholder return of 75% over the last year. That's including the dividend. That's better than the annualised return of 28% 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 Power Integrations better, we need to consider many other factors. Take risks, for example - Power Integrations has 3 warning signs we think you should be aware of.

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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.