Those who invested in Cognizant Technology Solutions (NASDAQ:CTSH) five years ago are up 30%

The main point of investing for the long term is to make money. Furthermore, you'd generally like to see the share price rise faster than the market. But Cognizant Technology Solutions Corporation (NASDAQ:CTSH) has fallen short of that second goal, with a share price rise of 21% over five years, which is below the market return. Looking at the last year alone, the stock is up 8.4%.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

Check out our latest analysis for Cognizant Technology Solutions

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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Cognizant Technology Solutions achieved compound earnings per share (EPS) growth of 4.1% per year. This EPS growth is reasonably close to the 4% average annual increase in the share price. This indicates that investor sentiment towards the company has not changed a great deal. Rather, the share price has approximately tracked EPS growth.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

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

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, Cognizant Technology Solutions' TSR for the last 5 years was 30%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

Cognizant Technology Solutions shareholders gained a total return of 10% during the year. Unfortunately this falls short of the market return. The silver lining is that the gain was actually better than the average annual return of 5% per year over five year. This suggests the company might be improving over time. 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 - Cognizant Technology Solutions has 1 warning sign we think you should be aware of.

We will like Cognizant Technology Solutions 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.