Builders FirstSource (NYSE:BLDR) shareholders have earned a 59% CAGR over the last five years

Builders FirstSource, Inc. (NYSE:BLDR) shareholders might be concerned after seeing the share price drop 11% in the last quarter. But that does not change the realty that the stock's performance has been terrific, over five years. To be precise, the stock price is 924% higher than it was five years ago, a wonderful performance by any measure. So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 37% drop, in the last year. We love happy stories like this one. The company should be really proud of that performance!

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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.

Over half a decade, Builders FirstSource managed to grow its earnings per share at 38% a year. This EPS growth is lower than the 59% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. That's not necessarily surprising considering the five-year track record of earnings growth.

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

It's probably worth noting that the CEO is paid less than the median at similar sized 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 Builders FirstSource's earnings, revenue and cash flow.

A Different Perspective

Builders FirstSource shareholders are down 37% for the year, but the market itself is up 12%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 59%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for Builders FirstSource you should know about.

Of course Builders FirstSource 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 American exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.