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For us, stock picking is in large part the hunt for the truly magnificent stocks. But when you hold the right stock for the right time period, the rewards can be truly huge. For example, the Rolls-Royce Holdings plc (LON:RR.) share price is up a whopping 476% in the last three years, a handsome return for long term holders. On top of that, the share price is up 12% in about a quarter.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
See our latest analysis for Rolls-Royce Holdings
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just 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 the three years of share price growth, Rolls-Royce Holdings actually saw its earnings per share (EPS) drop 0.2% per year.
Given the share price resilience, we don't think the (declining) EPS numbers are a good measure of how the business is moving forward, right now. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.
It could be that the revenue growth of 18% per year is viewed as evidence that Rolls-Royce Holdings is growing. If the company is being managed for the long term good, today's shareholders might be right to hold on.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think Rolls-Royce Holdings will earn in the future (free profit forecasts).
A Different Perspective
It's good to see that Rolls-Royce Holdings has rewarded shareholders with a total shareholder return of 73% in the last twelve months. That gain is better than the annual TSR over five years, which is 24%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Rolls-Royce Holdings better, we need to consider many other factors. Case in point: We've spotted 2 warning signs for Rolls-Royce Holdings you should be aware of, and 1 of them doesn't sit too well with us.