Buying shares in the best businesses can build meaningful wealth for you and your family. 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 Synopsys, Inc. (NASDAQ:SNPS) shares for the last five years, while they gained 432%. This just goes to show the value creation that some businesses can achieve. In more good news, the share price has risen -0.4% in thirty days.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, Synopsys managed to grow its earnings per share at 27% a year. This EPS growth is lower than the 40% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 54.74.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Synopsys has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Synopsys' financial health with this free report on its balance sheet.
A Different Perspective
We're pleased to report that Synopsys shareholders have received a total shareholder return of 68% over one year. That's better than the annualised return of 40% 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. Before spending more time on Synopsys it might be wise to click here to see if insiders have been buying or selling shares.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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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