The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But on the bright side, you can make far more than 100% on a really good stock. Long term Alphabet Inc. (NASDAQ:GOOGL) shareholders would be well aware of this, since the stock is up 162% in five years. Meanwhile the share price is 3.6% higher than it was a week ago.
After a strong gain in the past week, it’s worth seeing if longer term returns have been driven by improving fundamentals.
Check out our latest analysis for Alphabet
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ One way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its earnings per share (EPS).
During five years of share price growth, Alphabet achieved compound earnings per share (EPS) growth of 27% per year. This EPS growth is higher than the 21% average annual increase in the share price. So it seems the market isn’t so enthusiastic about the stock these days.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Alphabet has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
Alphabet’s TSR for the year was broadly in line with the market average, at 33%. Most would be happy with a gain, and it helps that the year’s return is actually better than the average return over five years, which was 21%. Even if the share price growth slows down from here, there’s a good chance that this is business worth watching in the long term. Is Alphabet cheap compared to other companies? These 3 valuation measures might help you decide.
We will like Alphabet better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) 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 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 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.
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