Is AudioCodes’s 210% Share Price Increase Well Justified?

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The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For example, the AudioCodes Ltd. (NASDAQ:AUDC) share price has soared 210% in the last three years. That sort of return is as solid as granite. On top of that, the share price is up 28% in about a quarter.

See our latest analysis for AudioCodes

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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.

During three years of share price growth, AudioCodes achieved compound earnings per share growth of 271% per year. The average annual share price increase of 46% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

NasdaqGS:AUDC Past and Future Earnings, February 25th 2019
NasdaqGS:AUDC Past and Future Earnings, February 25th 2019

It is of course excellent to see how AudioCodes has grown profits over the years, but the future is more important for shareholders. You can see how its financial situation has strengthened (or weakened) over time in this free interactive graphic.

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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for AudioCodes the TSR over the last 3 years was 219%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It’s good to see that AudioCodes has rewarded shareholders with a total shareholder return of 80% in the last twelve months. And that does include the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 9.3% per year), it would seem that the stock’s performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Is AudioCodes cheap compared to other companies? These 3 valuation measures might help you decide.

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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 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.