We think that it's fair to say that the possibility of finding fantastic multi-year winners is what motivates many investors. Not every pick can be a winner, but when you pick the right stock, you can win big. For example, the MicroStrategy Incorporated (NASDAQ:MSTR) share price is up a whopping 417% in the last three years, a handsome return for long term holders. On top of that, the share price is up 18% in about a 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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During three years of share price growth, MicroStrategy achieved compound earnings per share growth of 18% per year. We note, however, that extraordinary items have impacted earnings. This EPS growth is lower than the 73% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
It's nice to see that MicroStrategy shareholders have received a total shareholder return of 410% over the last year. That's better than the annualised return of 29% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand MicroStrategy better, we need to consider many other factors. For example, we've discovered 3 warning signs for MicroStrategy (1 is a bit unpleasant!) that you should be aware of before investing here.
Of course MicroStrategy may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.
