Advertisement
New Zealand markets closed
  • NZX 50

    12,105.29
    +94.63 (+0.79%)
     
  • NZD/USD

    0.5982
    -0.0024 (-0.39%)
     
  • NZD/EUR

    0.5537
    -0.0006 (-0.11%)
     
  • ALL ORDS

    8,153.70
    +80.10 (+0.99%)
     
  • ASX 200

    7,896.90
    +77.30 (+0.99%)
     
  • OIL

    82.61
    +1.26 (+1.55%)
     
  • GOLD

    2,234.90
    +22.20 (+1.00%)
     
  • NASDAQ

    18,249.42
    -31.43 (-0.17%)
     
  • FTSE

    7,965.15
    +33.17 (+0.42%)
     
  • Dow Jones

    39,779.32
    +19.24 (+0.05%)
     
  • DAX

    18,497.59
    +20.50 (+0.11%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • NIKKEI 225

    40,168.07
    -594.66 (-1.46%)
     
  • NZD/JPY

    90.4440
    -0.3360 (-0.37%)
     

Spirent Communications (LON:SPT) shareholders have earned a 19% CAGR over the last five years

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. One great example is Spirent Communications plc (LON:SPT) which saw its share price drive 101% higher over five years. In more good news, the share price has risen 12% in thirty days. But the price may well have benefitted from a buoyant market, since stocks have gained 8.7% in the last thirty days.

Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.

View our latest analysis for Spirent Communications

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 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).

ADVERTISEMENT

During the five years of share price growth, Spirent Communications 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. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the Spirent Communications share price has gained 64% in three years. During the same period, EPS grew by 17% each year. That makes EPS very close to the 18% share price growth, each year, over the same period. That suggests that the market sentiment around the company hasn't changed much over that time. Rather, the share price has approximately tracked EPS growth.

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
earnings-per-share-growth

It might be well worthwhile taking a look at our free report on Spirent Communications' 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Spirent Communications, it has a TSR of 136% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!

A Different Perspective

While the broader market gained around 4.6% in the last year, Spirent Communications shareholders lost 1.9% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 19% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Spirent Communications better, we need to consider many other factors. For example, we've discovered 1 warning sign for Spirent Communications that you should be aware of before investing here.

We will like Spirent Communications better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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.