Novanta's (NASDAQ:NOVT) five-year total shareholder returns outpace the underlying earnings growth

When we invest, we're generally looking for stocks that outperform the market average. And in our experience, buying the right stocks can give your wealth a significant boost. For example, long term Novanta Inc. (NASDAQ:NOVT) shareholders have enjoyed a 85% share price rise over the last half decade, well in excess of the market return of around 65% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 1.5% in the last year.

Although Novanta has shed US$420m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

See our latest analysis for Novanta

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

During five years of share price growth, Novanta achieved compound earnings per share (EPS) growth of 6.9% per year. This EPS growth is lower than the 13% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. 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 78.20.

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

This free interactive report on Novanta's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

A Different Perspective

Novanta provided a TSR of 1.5% over the last twelve months. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 13% per year for five years. It may well be that this is a business worth popping on the watching, given the continuing positive reception, over time, from the market. Is Novanta cheap compared to other companies? These 3 valuation measures might help you decide.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.