Cadence Design Systems (NASDAQ:CDNS) jumps 6.9% this week, though earnings growth is still tracking behind five-year shareholder returns

We think all investors should try to buy and hold high quality multi-year winners. While the best companies are hard to find, but they can generate massive returns over long periods. Just think about the savvy investors who held Cadence Design Systems, Inc. (NASDAQ:CDNS) shares for the last five years, while they gained 340%. If that doesn't get you thinking about long term investing, we don't know what will. It's also good to see the share price up 28% over the last quarter.

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

Check out our latest analysis for Cadence Design 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 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.

Over half a decade, Cadence Design Systems managed to grow its earnings per share at 19% a year. This EPS growth is slower than the share price growth of 34% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 84.85.

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

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

A Different Perspective

Cadence Design Systems shareholders gained a total return of 9.0% during the year. But that was short of the market average. On the bright side, the longer term returns (running at about 34% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. Before spending more time on Cadence Design Systems it might be wise to click here to see if insiders have been buying or selling shares.

We will like Cadence Design Systems 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.