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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%. Long term InterDigital, Inc. (NASDAQ:IDCC) shareholders would be well aware of this, since the stock is up 235% in five years. It's also good to see the share price up 41% over the last quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.
Since the stock has added US$204m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
Check out our latest analysis for InterDigital
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
During five years of share price growth, InterDigital achieved compound earnings per share (EPS) growth of 105% per year. The EPS growth is more impressive than the yearly share price gain of 27% over the same period. So one could conclude that the broader market has become more cautious towards the stock.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It is of course excellent to see how InterDigital has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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 InterDigital the TSR over the last 5 years was 271%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
It's good to see that InterDigital has rewarded shareholders with a total shareholder return of 93% in the last twelve months. That's including the dividend. That gain is better than the annual TSR over five years, which is 30%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with InterDigital , and understanding them should be part of your investment process.