VeriSign (NASDAQ:VRSN) sheds 4.3% this week, as yearly returns fall more in line with earnings growth

If you want to compound wealth in the stock market, you can do so by buying an index fund. But investors can boost returns by picking market-beating companies to own shares in. For example, the VeriSign, Inc. (NASDAQ:VRSN) share price is up 28% in the last 1 year, clearly besting the market decline of around 3.4% (not including dividends). So that should have shareholders smiling. However, the stock hasn't done so well in the longer term, with the stock only up 9.8% in three years.

Although VeriSign has shed US$1.0b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

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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).

VeriSign was able to grow EPS by 1.3% in the last twelve months. The share price gain of 28% certainly outpaced the EPS growth. So it's fair to assume the market has a higher opinion of the business than it a year ago.

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

It might be well worthwhile taking a look at our free report on VeriSign's earnings, revenue and cash flow .

A Different Perspective

We're pleased to report that VeriSign shareholders have received a total shareholder return of 28% over one year. That gain is better than the annual TSR over five years, which is 4%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with VeriSign (at least 1 which makes us a bit uncomfortable) , and understanding them should be part of your investment process.

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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.