SHIFT's (TSE:3697) five-year earnings growth trails the solid shareholder returns

When you buy a stock there is always a possibility that it could drop 100%. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For instance, the price of SHIFT Inc. (TSE:3697) stock is up an impressive 129% over the last five years. It's also up 29% in about a month.

Since the stock has added JP¥29b 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 five years of share price growth, SHIFT achieved compound earnings per share (EPS) growth of 32% per year. The EPS growth is more impressive than the yearly share price gain of 18% over the same period. So it seems the market isn't so enthusiastic about the stock these days. Having said that, the market is still optimistic, given the P/E ratio of 61.49.

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 SHIFT's earnings, revenue and cash flow.

A Different Perspective

We're pleased to report that SHIFT shareholders have received a total shareholder return of 39% over one year. That's better than the annualised return of 18% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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 SHIFT that you should be aware of before investing here.

For those who like to find winning investments this free list of undervalued 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 Japanese 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.