Adyen (AMS:ADYEN) sheds 7.1% this week, as yearly returns fall more in line with earnings growth

If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. To wit, the Adyen N.V. (AMS:ADYEN) share price is 39% higher than it was a year ago, much better than the market return of around 1.4% (not including dividends) in the same period. So that should have shareholders smiling. In contrast, the longer term returns are negative, since the share price is 17% lower than it was three years ago.

While this past week has detracted from the company's one-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

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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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the last year Adyen grew its earnings per share (EPS) by 32%. This EPS growth is reasonably close to the 39% increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. We don't think its coincidental that the share price is growing at a similar rate to the earnings per share.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

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. Dive deeper into the earnings by checking this interactive graph of Adyen's earnings, revenue and cash flow.

A Different Perspective

It's good to see that Adyen has rewarded shareholders with a total shareholder return of 39% in the last twelve months. There's no doubt those recent returns are much better than the TSR loss of 0.5% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Is Adyen cheap compared to other companies? These 3 valuation measures might help you decide.

Of course Adyen 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 Dutch 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.