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When you buy shares in a company, it’s worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, you can make far more than 100% on a really good stock. For instance, the price of Intuit Inc. (NASDAQ:INTU) stock is up an impressive 140% over the last five years.
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 Intuit
To quote Buffett, ‘Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace…’ 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, Intuit achieved compound earnings per share (EPS) growth of 11% per year. This EPS growth is lower than the 19% average annual increase in the share price. So it’s fair to assume the market has a higher opinion of the business than it did five years ago. And that’s hardly shocking given the track record of growth. This optimism is visible in its fairly high P/E ratio of 61.24.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that Intuit has improved its bottom line lately, but is it going to grow revenue? This free report showing analyst revenue forecasts should help you figure out if the EPS growth can be sustained.
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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Intuit the TSR over the last 5 years was 148%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
Intuit shareholders are up 2.8% for the year (even including dividends). Unfortunately this falls short of the market return. It’s probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 20% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. 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. Take risks, for example – Intuit has 1 warning sign we think you should be aware of.
