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We think all investors should try to buy and hold high quality multi-year winners. And we've seen some truly amazing gains over the years. Just think about the savvy investors who held Broadcom Inc. (NASDAQ:AVGO) shares for the last five years, while they gained 682%. This just goes to show the value creation that some businesses can achieve. It's also good to see the share price up 54% over the last quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report. We love happy stories like this one. The company should be really proud of that performance!
Since the stock has added US$332b 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 Broadcom
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' 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).
Over half a decade, Broadcom managed to grow its earnings per share at 14% a year. This EPS growth is lower than the 51% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 189.31.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It might be well worthwhile taking a look at our free report on Broadcom's 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Broadcom the TSR over the last 5 years was 799%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's nice to see that Broadcom shareholders have received a total shareholder return of 121% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 55%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Broadcom , and understanding them should be part of your investment process.