When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. For instance, the price of Silicon Laboratories Inc. (NASDAQ:SLAB) stock is up an impressive 277% over the last five years. Also pleasing for shareholders was the 34% gain in the last three months. But this could be related to the strong market, which is up 14% in the last three months.
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.
Silicon Laboratories' earnings per share are down 16% per year, despite strong share price performance over five years.
Essentially, it doesn't seem likely that investors are focused on EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
On the other hand, Silicon Laboratories' revenue is growing nicely, at a compound rate of 6.5% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
Silicon Laboratories is a well known stock, with plenty of analyst coverage, suggesting some visibility into future growth. So it makes a lot of sense to check out what analysts think Silicon Laboratories will earn in the future (free analyst consensus estimates)
A Different Perspective
It's good to see that Silicon Laboratories has rewarded shareholders with a total shareholder return of 45% in the last twelve months. That gain is better than the annual TSR over five years, which is 30%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Silicon Laboratories has 3 warning signs (and 1 which is a bit concerning) we think you should know about.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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What are the risks and opportunities for Silicon Laboratories?
Revenue is forecast to grow 11.12% per year
Became profitable this year
Earnings are forecast to decline by an average of 24.8% per year for the next 3 years
High level of non-cash earnings
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. 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.
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