Progress Software (NASDAQ:PRGS) grows 9.9% this week, taking five-year gains to 80%

When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Progress Software Corporation (NASDAQ:PRGS) shareholders have enjoyed a 67% share price rise over the last half decade, well in excess of the market return of around 53% (not including dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 13% , including dividends .

Since the stock has added US$203m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Progress Software

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 the last half decade, Progress Software became profitable. That would generally be considered a positive, so we'd expect the share price to be up. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. We can see that the Progress Software share price is up 18% in the last three years. Meanwhile, EPS is up 22% per year. This EPS growth is higher than the 6% average annual increase in the share price over the same three years. 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).

Dive deeper into Progress Software's key metrics by checking this interactive graph of Progress Software's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Progress Software the TSR over the last 5 years was 80%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Progress Software has rewarded shareholders with a total shareholder return of 13% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 13% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Case in point: We've spotted 2 warning signs for Progress Software you should be aware of.

But note: Progress Software may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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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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.