Investors five-year returns in Nanosonics (ASX:NAN) have grown faster than the company's underlying earnings growth

By
Simply Wall St
Published
December 01, 2021
ASX:NAN
Source: Shutterstock

Nanosonics Limited (ASX:NAN) shareholders might be concerned after seeing the share price drop 20% in the last quarter. But that doesn't change the fact that the returns over the last five years have been pleasing. Its return of 75% has certainly bested the market return!

Although Nanosonics has shed AU$112m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

View our latest analysis for Nanosonics

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.

During five years of share price growth, Nanosonics achieved compound earnings per share (EPS) growth of 132% per year. This EPS growth is higher than the 12% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. Of course, with a P/E ratio of 187.48, the market remains optimistic.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth
ASX:NAN Earnings Per Share Growth December 2nd 2021

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

A Different Perspective

While the broader market gained around 16% in the last year, Nanosonics shareholders lost 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 12% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 - Nanosonics has 1 warning sign we think you should be aware of.

We will like Nanosonics better if we see some big insider buys. While we wait, check out this free list of growing companies 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 AU exchanges.

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