Stock Analysis

Shareholders of Cognex (NASDAQ:CGNX) Must Be Delighted With Their 402% Total Return

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NasdaqGS:CGNX
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For many, the main point of investing in the stock market is to achieve spectacular returns. While not every stock performs well, when investors win, they can win big. For example, the Cognex Corporation (NASDAQ:CGNX) share price is up a whopping 378% in the last half decade, a handsome return for long term holders. If that doesn't get you thinking about long term investing, we don't know what will. On top of that, the share price is up 27% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 14% in 90 days).

See our latest analysis for Cognex

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 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, Cognex managed to grow its earnings per share at 11% a year. This EPS growth is slower than the share price growth of 37% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. 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 74.43.

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

earnings-per-share-growth
NasdaqGS:CGNX Earnings Per Share Growth December 28th 2020

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. Dive deeper into the earnings by checking this interactive graph of Cognex's earnings, revenue and cash flow.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Cognex's TSR for the last 5 years was 402%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Cognex shareholders have received a total shareholder return of 48% over the last year. Of course, that includes the dividend. That gain is better than the annual TSR over five years, which is 38%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Cognex better, we need to consider many other factors. Take risks, for example - Cognex has 2 warning signs we think you should be aware of.

Of course Cognex may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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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