Long-term investing can be life-changing when you buy and hold a truly great business. And the highest quality companies can see their stock prices rise significantly. for example, Cadence Design Systems Co., Ltd. (NASDAQ:CDNS) stock is up 381% over the past five years, representing a significant return for long-term holders. This just shows the value creation that some companies can achieve. Shareholders are also happy to see that the stock is up 18% in the past three months. However, this could be related to the strong market, which is up 8.9% over the past three months.
It's also worth looking at the company's fundamentals here. That's because it helps determine whether long-term shareholder returns are consistent with the performance of the underlying business.
Check out our latest analysis for Cadence Design Systems.
Although the efficient markets hypothesis continues to be taught by some, it has been proven that markets are dynamic systems that overreact and that investors are not always rational. By comparing earnings per share (EPS) and share price changes over time, we can learn how investor attitudes to a company have changed over time.
Cadence Design Systems has managed to grow its earnings per share at 25% per year over five years. This EPS growth for him is slower than the stock's 37% annual growth over the same period. So it's fair to think the market has a higher valuation for this business than it did five years ago. This isn't necessarily surprising, given its track record of profit growth over the past five years. This optimism is reflected in its fairly high P/E ratio of 81.54.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know Cadence Design Systems has been improving its earnings lately, but will its earnings grow? If you're interested, you might want to check this out free A report showing consensus revenue forecasts.
different perspective
We're pleased to report that Cadence Design Systems shareholders have received a total shareholder return of 46% over one year. The stock's performance appears to be improving recently, as the 1-year TSR is better than his 5-year TSR (the latter at 37% per annum). In the best-case scenario, this could signal real business momentum and suggest that now could be a great time to dig deeper. If you want to investigate Cadence Design Systems further, you might want to see if insiders are buying or selling shares in the company.
We would further like Cadence Design Systems if we see some significant insider buying.While you wait, check this out free A list of growing companies with significant recent insider purchasing.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
