We think all investors should try to buy and hold high quality multi-year winners. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held Take-Two Interactive Software, Inc. (NASDAQ:TTWO) shares for the last five years, while they gained 471%. If that doesn't get you thinking about long term investing, we don't know what will. It's also good to see the share price up 20% over the last quarter.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Take-Two Interactive Software actually saw its EPS drop 8.3% per year. This means it's unlikely the market is judging the company based on earnings growth. 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.
In contrast revenue growth of 10% per year is probably viewed as evidence that Take-Two Interactive Software is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. This free report showing analyst forecasts should help you form a view on Take-Two Interactive Software
A Different Perspective
Take-Two Interactive Software provided a TSR of 2.3% over the last twelve months. But that was short of the market average. On the bright side, the longer term returns (running at about 42% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. Before spending more time on Take-Two Interactive Software it might be wise to click here to see if insiders have been buying or selling shares.
Of course Take-Two Interactive Software 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 email@example.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.