When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. For instance, the price of Illumina, Inc. (NASDAQ:ILMN) stock is up an impressive 196% over the last five years. On top of that, the share price is up 18% in about a quarter.
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Illumina achieved compound earnings per share (EPS) growth of 8.5% per year. This EPS growth is slower than the share price growth of 24% per year, over the same period. 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. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 112.01.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
Dive deeper into Illumina's key metrics by checking this interactive graph of Illumina's earnings, revenue and cash flow.
A Different Perspective
Illumina shareholders are up 23% for the year. But that was short of the market average. On the bright side, the longer term returns (running at about 24% a year, over half a decade) look better. 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 Illumina better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with Illumina .
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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This article by Simply Wall St is general in nature. 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.
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