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Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. Don't believe it? Then look at the Cadence Design Systems, Inc. (NASDAQ:CDNS) share price. It's 316% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. Also pleasing for shareholders was the 16% gain in the last three months.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
Check out our latest analysis for Cadence Design Systems
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).
Over half a decade, Cadence Design Systems managed to grow its earnings per share at 19% a year. This EPS growth is slower than the share price growth of 33% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 80.20.
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 Cadence Design Systems' earnings, revenue and cash flow.
A Different Perspective
Cadence Design Systems shareholders are up 20% for the year. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 33% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. Before spending more time on Cadence Design Systems it might be wise to click here to see if insiders have been buying or selling shares.
Of course Cadence Design Systems 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 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.