Is SPS Commerce’s (NASDAQ:SPSC) 156% Share Price Increase Well Justified?

The most you can lose on any stock (assuming you don’t use leverage) is 100% of your money. But when you pick a company that is really flourishing, you can make more than 100%. For instance the SPS Commerce, Inc. (NASDAQ:SPSC) share price is 156% higher than it was three years ago. How nice for those who held the stock! It’s also good to see the share price up 30% over the last quarter. But this could be related to the strong market, which is up 18% in the last three months.

View our latest analysis for SPS Commerce

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 three years of share price growth, SPS Commerce achieved compound earnings per share growth of 71% per year. This EPS growth is higher than the 37% average annual increase in the share price. Therefore, it seems the market has moderated its expectations for growth, somewhat. Of course, with a P/E ratio of 75.45, the market remains optimistic.

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

NasdaqGS:SPSC Past and Future Earnings, March 26th 2019
NasdaqGS:SPSC Past and Future Earnings, March 26th 2019

We know that SPS Commerce has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at SPS Commerce’s financial health with this free report on its balance sheet.

A Different Perspective

It’s good to see that SPS Commerce has rewarded shareholders with a total shareholder return of 69% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 11% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. If you would like to research SPS Commerce in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.