Introducing Gooch & Housego (LON:GHH), A Stock That Climbed 27% In The Last Five Years

Stock pickers are generally looking for stocks that will outperform the broader market. And in our experience, buying the right stocks can give your wealth a significant boost. To wit, the Gooch & Housego share price has climbed 27% in five years, easily topping the market return of 18% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 19%.

View our latest analysis for Gooch & Housego

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 five years of share price growth, Gooch & Housego actually saw its EPS drop 13% per year.

The strong decline in earnings per share suggests the market isn't using EPS to judge the company. The falling EPS doesn't correlate with the climbing share price, so it's worth taking a look at other metrics.

On the other hand, Gooch & Housego's revenue is growing nicely, at a compound rate of 10% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

If you are thinking of buying or selling Gooch & Housego stock, you should check out this FREE detailed report on its balance sheet.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Gooch & Housego's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Its history of dividend payouts mean that Gooch & Housego's TSR of 32% over the last 5 years is better than the share price return.

A Different Perspective

Gooch & Housego provided a TSR of 19% over the last twelve months. But that return falls short of the market. The silver lining is that the gain was actually better than the average annual return of 6% per year over five year. It is possible that returns will improve along with the business fundamentals. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Gooch & Housego , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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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