In This Article:
Advanced Micro Devices, Inc. (NASDAQ:AMD) shareholders might be concerned after seeing the share price drop 17% in the last month. But over five years returns have been remarkably great. To be precise, the stock price is 446% higher than it was five years ago, a wonderful performance by any measure. So we don't think the recent decline in the share price means its story is a sad one. Only time will tell if there is still too much optimism currently reflected in the share price. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 55% drop, in the last year.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
See our latest analysis for Advanced Micro Devices
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During the five years of share price growth, Advanced Micro Devices 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 Advanced Micro Devices share price has gained 33% in three years. In the same period, EPS is up 92% per year. This EPS growth is higher than the 10% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
We know that Advanced Micro Devices has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling Advanced Micro Devices stock, you should check out this FREE detailed report on its balance sheet.
A Different Perspective
While the broader market lost about 22% in the twelve months, Advanced Micro Devices shareholders did even worse, losing 55%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 40% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 Advanced Micro Devices , and understanding them should be part of your investment process.