Nasdaq's (NASDAQ:NDAQ) investors will be pleased with their splendid 157% return over the last five years

By
Simply Wall St
Published
February 24, 2022
NasdaqGS:NDAQ
Source: Shutterstock

Nasdaq, Inc. (NASDAQ:NDAQ) shareholders might be concerned after seeing the share price drop 17% in the last quarter. But that scarcely detracts from the really solid long term returns generated by the company over five years. Indeed, the share price is up an impressive 136% in that time. We think it's more important to dwell on the long term returns than the short term returns. The more important question is whether the stock is too cheap or too expensive today.

With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.

See our latest analysis for Nasdaq

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 imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Over half a decade, Nasdaq managed to grow its earnings per share at 62% a year. The EPS growth is more impressive than the yearly share price gain of 19% over the same period. Therefore, it seems the market has become relatively pessimistic about the company.

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

earnings-per-share-growth
NasdaqGS:NDAQ Earnings Per Share Growth February 24th 2022

It is of course excellent to see how Nasdaq has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Nasdaq stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Nasdaq, it has a TSR of 157% for the last 5 years. That exceeds its share price return that we previously mentioned. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Nasdaq shareholders have received a total shareholder return of 21% over one year. And that does include the dividend. That's better than the annualised return of 21% 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. It's always interesting to track share price performance over the longer term. But to understand Nasdaq better, we need to consider many other factors. Take risks, for example - Nasdaq has 2 warning signs (and 1 which is a bit concerning) we think you should know about.

Of course Nasdaq 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 US exchanges.

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