Rambus (NASDAQ:RMBS) delivers shareholders enviable 36% CAGR over 5 years, surging 6.5% in the last week alone

Buying shares in the best businesses can build meaningful wealth for you and your family. While not every stock performs well, when investors win, they can win big. For example, the Rambus Inc. (NASDAQ:RMBS) share price is up a whopping 373% 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. It's also good to see the share price up 49% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 20% in 90 days).

The past week has proven to be lucrative for Rambus investors, so let's see if fundamentals drove the company's five-year performance.

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To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the last half decade, Rambus became profitable. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

It is of course excellent to see how Rambus has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

Rambus' TSR for the year was broadly in line with the market average, at 18%. We should note here that the five-year TSR is more impressive, at 36% per year. Although the share price growth has slowed, the longer term story points to a business well worth watching. It's always interesting to track share price performance over the longer term. But to understand Rambus better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Rambus you should be aware of.

We will like Rambus better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.