Monolithic Power Systems' (NASDAQ:MPWR) five-year earnings growth trails the enviable shareholder returns

We think all investors should try to buy and hold high quality multi-year winners. While not every stock performs well, when investors win, they can win big. For example, the Monolithic Power Systems, Inc. (NASDAQ:MPWR) share price is up a whopping 547% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. And in the last month, the share price has gained 17%. We note that Monolithic Power Systems reported its financial results recently; luckily, you can catch up on the latest revenue and profit numbers in our company report. Anyone who held for that rewarding ride would probably be keen to talk about it.

Since it's been a strong week for Monolithic Power Systems shareholders, let's have a look at trend of the longer term fundamentals.

See our latest analysis for Monolithic Power Systems

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. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Monolithic Power Systems achieved compound earnings per share (EPS) growth of 27% per year. This EPS growth is slower than the share price growth of 45% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. 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 89.41.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

This free interactive report on Monolithic Power Systems' earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Monolithic Power Systems, it has a TSR of 573% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Monolithic Power Systems shareholders have received a total shareholder return of 46% over one year. Of course, that includes the dividend. However, that falls short of the 46% TSR per annum it has made for shareholders, each year, over five years. 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. Take risks, for example - Monolithic Power Systems has 2 warning signs we think you should be aware of.

But note: Monolithic Power Systems may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.