<!-- HTML_TAG_START -->NasdaqGS:AMAT Discounted Cash Flow December 29th 2024<!-- HTML_TAG_END -->
Applied Materials, Inc. (NASDAQ:AMAT) shareholders might be concerned after seeing the share price drop 20% in the last quarter. But that scarcely detracts from the really solid long term returns generated by the company over five years. Indeed, the share price is up an impressive 173% in that time. We think it’s more important to dwell on the long term returns than the short term returns. Only time will tell if there is still too much optimism currently reflected in the share price.
So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.
View our latest analysis for Applied Materials
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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 five years of share price growth, Applied Materials achieved compound earnings per share (EPS) growth of 25% per year. So the EPS growth rate is rather close to the annualized share price gain of 22% per year. Therefore one could conclude that sentiment towards the shares hasn’t morphed very much. In fact, the share price seems to largely reflect the EPS growth.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
This free interactive report on Applied Materials’ earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. It’s fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Applied Materials the TSR over the last 5 years was 186%, 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!
Applied Materials shareholders are up 14% for the year (even including dividends). Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 23% a year, over half a decade) look better. It’s quite possible the business continues to execute with prowess, even as the share price gains are slowing. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
