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Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, long term Cirrus Logic, Inc. (NASDAQ:CRUS) shareholders have enjoyed a 77% share price rise over the last half decade, well in excess of the market return of around 44% (not including dividends). On the other hand, the more recent gains haven’t been so impressive, with shareholders gaining just 11%.
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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, Cirrus Logic actually saw its EPS drop 2.7% per year. By glancing at these numbers, we’d posit that the decline in earnings per share is not representative of how the business has changed over the years. Therefore, it’s worth taking a look at other metrics to try to understand the share price movements.
In contrast revenue growth of 13% per year is probably viewed as evidence that Cirrus Logic is growing, a real positive. In that case, the company may be sacrificing current earnings per share to drive growth.
If you are thinking of buying or selling Cirrus Logic stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
We’re pleased to report that Cirrus Logic shareholders have received a total shareholder return of 11% over one year. Having said that, the five-year TSR of 12% a year, is even better. Before spending more time on Cirrus Logic it might be wise to click here to see if insiders have been buying or selling shares.
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.
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.