Cellcom Israel (TLV:CEL) climbs 4.0% this week, taking five-year gains to 170%

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, you can make far more than 100% on a really good stock. One great example is Cellcom Israel Ltd. (TLV:CEL) which saw its share price drive 170% higher over five years. It's also good to see the share price up 12% over the last quarter.

Since the stock has added ₪225m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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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 five years of share price growth, Cellcom Israel moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Cellcom Israel share price is up 100% in the last three years. In the same period, EPS is up 30% per year. This EPS growth is reasonably close to the 26% average annual increase in the share price (over three years, again). So one might argue that investor sentiment towards the stock hss not changed much over time. There's a strong correlation between the share price and EPS.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It might be well worthwhile taking a look at our free report on Cellcom Israel's earnings, revenue and cash flow.

A Different Perspective

It's good to see that Cellcom Israel has rewarded shareholders with a total shareholder return of 96% in the last twelve months. That's better than the annualised return of 22% 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 example, we've discovered 1 warning sign for Cellcom Israel that you should be aware of before investing here.

Of course Cellcom Israel may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Israeli exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.