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Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. For example, the Adobe Inc. (NASDAQ:ADBE) share price is up a whopping 366% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. It's also good to see the share price up 20% over the last quarter. But this could be related to the strong market, which is up 10% 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 five years of share price growth, Adobe achieved compound earnings per share (EPS) growth of 59% per year. This EPS growth is higher than the 36% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. Of course, with a P/E ratio of 52.23, the market remains optimistic.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Adobe has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Adobe's financial health with this free report on its balance sheet.
A Different Perspective
It's nice to see that Adobe shareholders have received a total shareholder return of 29% over the last year. Having said that, the five-year TSR of 36% a year, is even better. Before spending more time on Adobe it might be wise to click here to see if insiders have been buying or selling shares.
Of course Adobe 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.
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 firstname.lastname@example.org. 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.