Long term investing can be life changing when you buy and hold the truly great businesses. While not every stock performs well, when investors win, they can win big. To wit, the Water Intelligence plc (LON:WATR) share price has soared 560% over five years. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 50% gain in the last three months.
We love happy stories like this one. The company should be really proud of that performance!
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Water Intelligence achieved compound earnings per share (EPS) growth of 19% per year. This EPS growth is slower than the share price growth of 46% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. 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 48.88.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We know that Water Intelligence has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on Water Intelligence's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's nice to see that Water Intelligence shareholders have received a total shareholder return of 89% over the last year. That gain is better than the annual TSR over five years, which is 46%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. To that end, you should be aware of the 2 warning signs we've spotted with Water Intelligence .
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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Water Intelligence plc provides leak detection and remediation services for potable and non-potable water in the United States, the United Kingdom, Australia, Canada, and internationally.
Excellent balance sheet and slightly overvalued.