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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. For example, the SPS Commerce, Inc. (NASDAQ:SPSC) share price is up a whopping 390% in the last half decade, a handsome return for long term holders. If that doesn't get you thinking about long term investing, we don't know what will. The last week saw the share price soften some 6.2%.
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, SPS Commerce achieved compound earnings per share (EPS) growth of 56% per year. The EPS growth is more impressive than the yearly share price gain of 37% over the same period. So it seems the market isn't so enthusiastic about the stock these days. Of course, with a P/E ratio of 77.49, the market remains optimistic.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how SPS Commerce has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling SPS Commerce stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
We're pleased to report that SPS Commerce shareholders have received a total shareholder return of 149% over one year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 37% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. For example, we've discovered 2 warning signs for SPS Commerce that you should be aware of before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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