The most you can lose on any stock (assuming you don’t use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. For example, the Teradyne, Inc. (NASDAQ:TER) share price has soared 108% in the last three years. How nice for those who held the stock! On top of that, the share price is up 14% in about a quarter.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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).
Teradyne was able to grow its EPS at 35% per year over three years, sending the share price higher. This EPS growth is higher than the 28% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Teradyne has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Teradyne’s financial health with this free report on its balance sheet.
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 incorporates the value of any discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Teradyne the TSR over the last 3 years was 113%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
Teradyne shareholders are down 9.7% for the year (even including dividends), but the market itself is up 5.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn’t be so upset, since they would have made 16%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. If you would like to research Teradyne 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 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.
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 email@example.com. 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.