Investors in Diamondback Energy (NASDAQ:FANG) have seen splendid returns of 170% over the past five years

It hasn't been the best quarter for Diamondback Energy, Inc. (NASDAQ:FANG) shareholders, since the share price has fallen 11% in that time. But in stark contrast, the returns over the last half decade have impressed. It's fair to say most would be happy with 117% the gain in that time. Generally speaking the long term returns will give you a better idea of business quality than short periods can. The more important question is whether the stock is too cheap or too expensive today.

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

View our latest analysis for Diamondback Energy

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, Diamondback Energy achieved compound earnings per share (EPS) growth of 10% per year. This EPS growth is slower than the share price growth of 17% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. This free interactive report on Diamondback Energy's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Diamondback Energy's TSR for the last 5 years was 170%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Diamondback Energy shareholders gained a total return of 2.2% during the year. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 22% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. It's always interesting to track share price performance over the longer term. But to understand Diamondback Energy better, we need to consider many other factors. Take risks, for example - Diamondback Energy has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of undervalued small cap companies that insiders are buying.

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