A10 Networks (NYSE:ATEN) delivers shareholders impressive 15% CAGR over 5 years, surging 5.7% in the last week alone

Passive investing in index funds can generate returns that roughly match the overall market. But the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, the A10 Networks, Inc. (NYSE:ATEN) share price is 94% higher than it was five years ago, which is more than the market average. Zooming in, the stock is actually down 6.9% in the last year.

Since the stock has added US$55m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for A10 Networks

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).

During the last half decade, A10 Networks became profitable. That would generally be considered a positive, so we'd hope to see the share price to rise. 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. In fact, the A10 Networks stock price is 0.5% lower in the last three years. During the same period, EPS grew by 24% each year. So there seems to be a mismatch between the positive EPS growth and the change in the share price, which is down -0.2% per year.

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

Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for A10 Networks the TSR over the last 5 years was 103%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

Investors in A10 Networks had a tough year, with a total loss of 5.2% (including dividends), against a market gain of about 27%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 15%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 risks, for instance. Every company has them, and we've spotted 1 warning sign for A10 Networks you should know about.

We will like A10 Networks better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.