Introducing Gear4music (Holdings) (LON:G4M), The Stock That Soared 459% In The Last Five Years

We think all investors should try to buy and hold high quality multi-year winners. While not every stock performs well, when investors win, they can win big. For example, the Gear4music (Holdings) plc (LON:G4M) share price is up a whopping 459% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. In the last week shares have slid back 1.9%.

Check out our latest analysis for Gear4music (Holdings)

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 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 the last half decade, Gear4music (Holdings) became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Gear4music (Holdings) share price is up 16% in the last three years. During the same period, EPS grew by 68% each year. This EPS growth is higher than the 5% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

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. This free interactive report on Gear4music (Holdings)'s earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

It's nice to see that Gear4music (Holdings) shareholders have received a total shareholder return of 188% over the last year. That's better than the annualised return of 41% 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 3 warning signs for Gear4music (Holdings) (1 is potentially serious) that you should be aware of.

But note: Gear4music (Holdings) may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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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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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