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If you want to compound wealth in the stock market, you can do so by buying an index fund. But in our experience, buying the right stocks can give your wealth a significant boost. For example, the SWK Holdings Corporation (NASDAQ:SWKH) share price is up 78% in the last five years, slightly above the market return. The 0.5% share price rise over the last year is decent, but not great.
So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.
View our latest analysis for SWK Holdings
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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).
During five years of share price growth, SWK Holdings achieved compound earnings per share (EPS) growth of 22% per year. This EPS growth is higher than the 12% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. It might be well worthwhile taking a look at our free report on SWK Holdings' earnings, revenue and cash flow.
A Different Perspective
SWK Holdings shareholders gained a total return of 0.5% during the year. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 12% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. 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. Take risks, for example - SWK Holdings has 1 warning sign we think you should be aware of.
Of course SWK Holdings 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.