New Zealand markets closed
  • NZX 50

    12,197.15
    +44.99 (+0.37%)
     
  • NZD/USD

    0.6330
    -0.0144 (-2.23%)
     
  • NZD/EUR

    0.5856
    -0.0069 (-1.17%)
     
  • ALL ORDS

    7,771.80
    +43.30 (+0.56%)
     
  • ASX 200

    7,558.10
    +46.50 (+0.62%)
     
  • OIL

    73.23
    -2.65 (-3.49%)
     
  • GOLD

    1,877.70
    -53.10 (-2.75%)
     
  • NASDAQ

    12,573.36
    -229.78 (-1.79%)
     
  • FTSE

    7,901.80
    +81.64 (+1.04%)
     
  • Dow Jones

    33,926.01
    -127.93 (-0.38%)
     
  • DAX

    15,476.43
    -32.76 (-0.21%)
     
  • Hang Seng

    21,660.47
    -297.89 (-1.36%)
     
  • NIKKEI 225

    27,509.46
    +107.41 (+0.39%)
     
  • NZD/JPY

    83.0100
    -0.2030 (-0.24%)
     

Advanced Micro Devices (NASDAQ:AMD) shareholders have earned a 48% CAGR over the last five years

While Advanced Micro Devices, Inc. (NASDAQ:AMD) shareholders are probably generally happy, the stock hasn't had particularly good run recently, with the share price falling 15% in the last quarter. But over five years returns have been remarkably great. In fact, during that period, the share price climbed 600%. Impressive! So it might be that some shareholders are taking profits after good performance. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 51% drop, in the last year. Anyone who held for that rewarding ride would probably be keen to talk about it.

Now it's worth having a look at the company's fundamentals too, because that will help us determine if the long term shareholder return has matched the performance of the underlying business.

View our latest analysis for Advanced Micro Devices

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. 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 the five years of share price growth, Advanced Micro Devices moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Advanced Micro Devices share price has gained 92% in three years. Meanwhile, EPS is up 92% per year. This EPS growth is higher than the 24% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. Having said that, the market is still optimistic, given the P/E ratio of 53.30.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
earnings-per-share-growth

It is of course excellent to see how Advanced Micro Devices has grown profits over the years, but the future is more important for shareholders. This free interactive report on Advanced Micro Devices' balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

We regret to report that Advanced Micro Devices shareholders are down 51% for the year. Unfortunately, that's worse than the broader market decline of 17%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 48%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Advanced Micro Devices is showing 2 warning signs in our investment analysis , you should know about...

Of course Advanced Micro Devices 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here