Earnings grew faster than the splendid 18% CAGR delivered to Digi Communications (BVB:DIGI) shareholders over the last five years

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. One great example is Digi Communications N.V. (BVB:DIGI) which saw its share price drive 105% higher over five years. In more good news, the share price has risen 8.8% in thirty days. But this could be related to good market conditions -- stocks in its market are up 9.5% in the last month.

Since the long term performance has been good but there's been a recent pullback of 3.3%, let's check if the fundamentals match the share price.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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, Digi Communications achieved compound earnings per share (EPS) growth of 223% per year. This EPS growth is higher than the 15% average annual increase in the share price. So one could conclude that the broader market has become more cautious towards the stock. This cautious sentiment is reflected in its (fairly low) P/E ratio of 3.60.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It is of course excellent to see how Digi Communications has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Digi Communications' financial health with this free report on its balance sheet.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Digi Communications' TSR for the last 5 years was 125%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Digi Communications shareholders have received returns of 6.1% over twelve months (even including dividends), which isn't far from the general market return. It has to be noted that the recent return falls short of the 18% shareholders have gained each year, over half a decade. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes Digi Communications a stock worth watching. 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. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Digi Communications (of which 2 are a bit concerning!) you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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