Earnings grew faster than the favorable 7.2% CAGR delivered to Innoviva (NASDAQ:INVA) shareholders over the last five years

By
Simply Wall St
Published
August 25, 2021
NasdaqGS:INVA
Source: Shutterstock

If you buy and hold a stock for many years, you'd hope to be making a profit. Furthermore, you'd generally like to see the share price rise faster than the market. But Innoviva, Inc. (NASDAQ:INVA) has fallen short of that second goal, with a share price rise of 42% over five years, which is below the market return. On a brighter note, more newer shareholders are probably rather content with the 31% share price gain over twelve months.

Since the long term performance has been good but there's been a recent pullback of 5.4%, let's check if the fundamentals match the share price.

View our latest analysis for Innoviva

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Innoviva achieved compound earnings per share (EPS) growth of 75% per year. This EPS growth is higher than the 7% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 5.78.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
NasdaqGS:INVA Earnings Per Share Growth August 25th 2021

We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. It might be well worthwhile taking a look at our free report on Innoviva's earnings, revenue and cash flow.

A Different Perspective

Innoviva shareholders have received returns of 31% over twelve months, which isn't far from the general market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 7% per year. It is possible that management foresight will bring growth well into the future, even if the share price slows down. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 2 warning signs we've spotted with Innoviva .

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. 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.
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