One simple way to benefit from the stock market is to buy an index fund. But if you buy good businesses at attractive prices, your portfolio returns could exceed the average market return. Just take a look at PRA Health Sciences, Inc. (NASDAQ:PRAH), which is up 88%, over three years, soundly beating the market return of 38% (not including dividends). On the other hand, the returns haven’t been quite so good recently, with shareholders up just 8.2%.
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 three years of share price growth, PRA Health Sciences achieved compound earnings per share growth of 21% per year. We don’t think it is entirely coincidental that the EPS growth is reasonably close to the 23% average annual increase in the share price. This observation indicates that the market’s attitude to the business hasn’t changed all that much. Rather, the share price has approximately tracked EPS growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that PRA Health Sciences has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
A Different Perspective
PRA Health Sciences produced a TSR of 8.2% over the last year. Unfortunately this falls short of the market return of around 9.3%. At least the longer term returns (running at about 23% a year, are better. Even the best companies don’t see strong share price performance every year. Before deciding if you like the current share price, check how PRA Health Sciences scores on these 3 valuation metrics.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.