For many, the main point of investing in the stock market is to achieve spectacular returns. And highest quality companies can see their share prices grow by huge amounts. To wit, the PayPal Holdings, Inc. (NASDAQ:PYPL) share price has soared 569% over five years. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 13% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 8.9% in 90 days).
Anyone who held for that rewarding ride would probably be keen to talk about it.
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 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).
Over half a decade, PayPal Holdings managed to grow its earnings per share at 29% a year. This EPS growth is lower than the 46% average annual increase in the share price. 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 favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 75.33.
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 PayPal Holdings has improved its bottom line over the last three years, but what does the future have in store? This free interactive report on PayPal Holdings' balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
We're pleased to report that PayPal Holdings shareholders have received a total shareholder return of 141% over one year. That's better than the annualised return of 46% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. For example, we've discovered 3 warning signs for PayPal Holdings that you should be aware of before investing here.
But note: PayPal Holdings 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. 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.
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