Is NETGEAR's (NASDAQ:NTGR) 136% Share Price Increase Well Justified?

Unless you borrow money to invest, the potential losses are limited. But if you pick the right stock, you can make a lot more than 100%. For example, the NETGEAR, Inc. (NASDAQ:NTGR) share price has soared 136% in the last year. Most would be very happy with that, especially in just one year! Also pleasing for shareholders was the 13% gain in the last three months. But this move may well have been assisted by the reasonably buoyant market (up 6.0% in 90 days). On the other hand, longer term shareholders have had a tougher run, with the stock falling 24% in three years.

View our latest analysis for NETGEAR

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 year NETGEAR grew its earnings per share (EPS) by 136%. This EPS growth is remarkably close to the 136% increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. We don't think its coincidental that the share price is growing at a similar rate to the earnings per share.

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

We know that NETGEAR has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling NETGEAR stock, you should check out this FREE detailed report on its balance sheet.

A Different Perspective

It's nice to see that NETGEAR shareholders have received a total shareholder return of 136% over the last year. That's better than the annualised return of 12% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand NETGEAR better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with NETGEAR (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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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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. 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.
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