Investing in Palo Alto Networks (NASDAQ:PANW) five years ago would have delivered you a 359% gain

For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. Don't believe it? Then look at the Palo Alto Networks, Inc. (NASDAQ:PANW) share price. It's 359% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. On top of that, the share price is up 23% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 10% in 90 days).

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

Check out our latest analysis for Palo Alto Networks

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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, Palo Alto Networks became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains.

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

We know that Palo Alto Networks has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Palo Alto Networks stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

It's nice to see that Palo Alto Networks shareholders have received a total shareholder return of 49% over the last year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 36% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Palo Alto Networks is showing 3 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.