U.S. Markets close in 2 hrs 54 mins
  • S&P 500

    4,522.86
    -54.24 (-1.19%)
     
  • Dow 30

    34,494.68
    -145.11 (-0.42%)
     
  • Nasdaq

    15,016.81
    -364.51 (-2.37%)
     
  • Russell 2000

    2,166.30
    -40.03 (-1.81%)
     
  • Crude Oil

    66.87
    +0.37 (+0.56%)
     
  • Gold

    1,781.10
    +18.40 (+1.04%)
     
  • Silver

    22.44
    +0.12 (+0.56%)
     
  • EUR/USD

    1.1312
    +0.0006 (+0.0566%)
     
  • 10-Yr Bond

    1.3800
    -0.0680 (-4.70%)
     
  • Vix

    30.76
    +2.81 (+10.05%)
     
  • GBP/USD

    1.3233
    -0.0069 (-0.5174%)
     
  • USD/JPY

    112.8430
    -0.3660 (-0.3233%)
     
  • BTC-USD

    55,069.98
    -1,454.64 (-2.57%)
     
  • CMC Crypto 200

    1,396.23
    -45.53 (-3.16%)
     
  • FTSE 100

    7,122.32
    -6.89 (-0.10%)
     
  • Nikkei 225

    28,029.57
    +276.20 (+1.00%)
     

Spirent Communications' (LON:SPT) five-year earnings growth trails the 33% YoY shareholder returns

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

When you buy shares in a company, it's worth keeping in mind the possibility that it could fail, and you could lose your money. But when you pick a company that is really flourishing, you can make more than 100%. Long term Spirent Communications plc (LON:SPT) shareholders would be well aware of this, since the stock is up 253% in five years. Also pleasing for shareholders was the 11% gain in the last three months.

On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.

View our latest analysis for Spirent Communications

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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, Spirent Communications achieved compound earnings per share (EPS) growth of 39% per year. The EPS growth is more impressive than the yearly share price gain of 29% over the same period. So one could conclude that the broader market has become more cautious towards the stock.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

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

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. It might be well worthwhile taking a look at our free report on Spirent Communications' earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Spirent Communications' TSR for the last 5 years was 317%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Spirent Communications shareholders gained a total return of 1.9% during the year. But that return falls short of the market. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 33% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 2 warning signs for Spirent Communications that you should be aware of.

There are plenty of other companies that have insiders buying up shares. You probably do 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 GB 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.