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. Just think about the savvy investors who held Netflix, Inc. (NASDAQ:NFLX) shares for the last five years, while they gained 388%. And this is just one example of the epic gains achieved by some long term investors. Then again, the 8.7% share price decline hasn't been so fun for shareholders. This could be related to the soft market, with stocks down around 0.1% in the last month.
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 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.
Over half a decade, Netflix managed to grow its earnings per share at 96% a year. The EPS growth is more impressive than the yearly share price gain of 37% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. Of course, with a P/E ratio of 58.97, the market remains optimistic.
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 Netflix has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Netflix's financial health with this free report on its balance sheet.
A Different Perspective
Netflix shareholders are up 15% for the year. But that was short of the market average. On the bright side, the longer term returns (running at about 37% a year, over half a decade) look better. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. It's always interesting to track share price performance over the longer term. But to understand Netflix better, we need to consider many other factors. Even so, be aware that Netflix is showing 1 warning sign in our investment analysis , you should know about...
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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
