Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. To wit, the Advanced Micro Devices, Inc. (NASDAQ:AMD) share price has soared 790% over five years. And this is just one example of the epic gains achieved by some long term investors. It’s also good to see the share price up 61% over the last quarter. Anyone who held for that rewarding ride would probably be keen to talk about it.
Now it’s worth having a look at the company’s fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.
View our latest analysis for Advanced Micro Devices
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
Over half a decade, Advanced Micro Devices managed to grow its earnings per share at 9.0% a year. This EPS growth is lower than the 55% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That’s not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 392.39.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Advanced Micro Devices’ key metrics by checking this interactive graph of Advanced Micro Devices’s earnings, revenue and cash flow.
A Different Perspective
It’s good to see that Advanced Micro Devices has rewarded shareholders with a total shareholder return of 151% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 55% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example – Advanced Micro Devices has 2 warning signs we think you should be aware of.
If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.
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.
