U.S. markets open in 2 hours 35 minutes
  • S&P Futures

    4,577.75
    +6.50 (+0.14%)
     
  • Dow Futures

    35,288.00
    +29.00 (+0.08%)
     
  • Nasdaq Futures

    15,249.25
    +43.25 (+0.28%)
     
  • Russell 2000 Futures

    2,095.40
    +3.30 (+0.16%)
     
  • Crude Oil

    86.60
    +1.17 (+1.37%)
     
  • Gold

    1,818.90
    +6.50 (+0.36%)
     
  • Silver

    23.84
    +0.35 (+1.50%)
     
  • EUR/USD

    1.1344
    +0.0014 (+0.12%)
     
  • 10-Yr Bond

    1.8650
    0.0000 (0.00%)
     
  • Vix

    22.27
    +3.08 (+16.05%)
     
  • GBP/USD

    1.3638
    +0.0039 (+0.29%)
     
  • USD/JPY

    114.4800
    -0.1050 (-0.09%)
     
  • BTC-USD

    41,962.77
    +132.85 (+0.32%)
     
  • CMC Crypto 200

    995.73
    -13.65 (-1.35%)
     
  • FTSE 100

    7,583.40
    +19.85 (+0.26%)
     
  • Nikkei 225

    27,467.23
    -790.02 (-2.80%)
     

SPS Commerce (NASDAQ:SPSC) stock performs better than its underlying earnings growth over last five years

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

For many, the main point of investing in the stock market is to achieve spectacular returns. And highest quality companies can see their share prices grow by huge amounts. Don't believe it? Then look at the SPS Commerce, Inc. (NASDAQ:SPSC) share price. It's 347% higher than it was five years ago. And this is just one example of the epic gains achieved by some long term investors. On top of that, the share price is up 61% in about a quarter.

Since the stock has added US$437m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for SPS Commerce

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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, SPS Commerce achieved compound earnings per share (EPS) growth of 55% per year. This EPS growth is higher than the 35% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. Having said that, the market is still optimistic, given the P/E ratio of 128.85.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

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

It is of course excellent to see how SPS Commerce has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

A Different Perspective

It's good to see that SPS Commerce has rewarded shareholders with a total shareholder return of 108% in the last twelve months. That's better than the annualised return of 35% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for SPS Commerce you should know about.

We will like SPS Commerce better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider 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.