Optimism for Ciena (NYSE:CIEN) has grown this past week, despite five-year decline in earnings

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. But Ciena Corporation (NYSE:CIEN) has fallen short of that second goal, with a share price rise of 43% over five years, which is below the market return. Looking at the last year alone, the stock is up 14%.

Since the stock has added US$351m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Ciena

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, Ciena actually saw its EPS drop 4.4% per year.

So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

On the other hand, Ciena's revenue is growing nicely, at a compound rate of 4.4% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

Ciena is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think Ciena will earn in the future (free analyst consensus estimates)

A Different Perspective

Ciena shareholders gained a total return of 14% during the year. But that was short of the market average. On the bright side, that's still a gain, and it's actually better than the average return of 7% over half a decade This suggests the company might be improving over time. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

But note: Ciena may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.