Investors in Analog Devices (NASDAQ:ADI) have seen respectable returns of 92% over the past five years

The simplest way to invest in stocks is to buy exchange traded funds. But you can do a lot better than that by buying good quality businesses for attractive prices. For example, the Analog Devices, Inc. (NASDAQ:ADI) share price is up 74% in the last five years, slightly above the market return. Over the last year the stock price is up, albeit only a modest 2.6%.

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 Analog Devices

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, Analog Devices achieved compound earnings per share (EPS) growth of 6.1% per year. This EPS growth is slower than the share price growth of 12% 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.

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

Dive deeper into Analog Devices' key metrics by checking this interactive graph of Analog Devices's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Analog Devices the TSR over the last 5 years was 92%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

Analog Devices shareholders are up 4.6% for the year (even including dividends). But that return falls short of the market. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 14% over five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. If you would like to research Analog Devices in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

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 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.