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It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But when you pick a company that is really flourishing, you can make more than 100%. For example, the TopBuild Corp. (NYSE:BLD) share price has soared 116% in the last three years. Most would be happy with that. It's also good to see the share price up 11% over the last quarter.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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.
TopBuild was able to grow its EPS at 19% per year over three years, sending the share price higher. This EPS growth is lower than the 29% average annual increase in the share price. This indicates that the market is feeling more optimistic on the stock, after the last few years of progress. That's not necessarily surprising considering the three-year track record of earnings growth.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
This free interactive report on TopBuild's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
A Different Perspective
TopBuild shareholders are down 1.9% for the year, but the broader market is up 6.2%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Fortunately the longer term story is brighter, with total returns averaging about 29% per year over three years. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. Before spending more time on TopBuild it might be wise to click here to see if insiders have been buying or selling shares.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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.