Investors Who Bought Gooch & Housego (LON:GHH) Shares Five Years Ago Are Now Up 31%
Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. To wit, the Gooch & Housego share price has climbed 31% in five years, easily topping the market decline of 1.7% (ignoring dividends).
Check out our latest analysis for Gooch & Housego
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.
During five years of share price growth, Gooch & Housego actually saw its EPS drop 7.1% per year.
This means it's unlikely the market is judging the company based on earnings growth. Since the change in EPS doesn't seem to correlate with the change in share price, 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 13% over the last five years. It's quite possible that management are prioritizing revenue growth over EPS growth at the moment.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We know that Gooch & Housego has improved its bottom line lately, but what does the future have in store? If you are thinking of buying or selling Gooch & Housego stock, you should check out this free report showing analyst profit forecasts.
What about the Total Shareholder Return (TSR)?
We've already covered Gooch & Housego's share price action, but we should also mention its total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Dividends have been really beneficial for Gooch & Housego shareholders, and that cash payout contributed to why its TSR of 37%, over the last 5 years, is better than the share price return.
A Different Perspective
We regret to report that Gooch & Housego shareholders are down 11% for the year. Unfortunately, that's worse than the broader market decline of 4.4%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 6% 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. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
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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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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About AIM:GHH
Gooch & Housego
Engages in the manufacture and sale of acousto-optics, electro-optics, fiber optics, and precision optics and systems in the United Kingdom, North America, Europe, the Asia Pacific, and internationally.
Excellent balance sheet and fair value.