Synopsys' (NASDAQ:SNPS) five-year earnings growth trails the 35% YoY shareholder returns

Synopsys, Inc. -0.49% Pre

Synopsys, Inc.

SNPS

613.01

613.01

-0.49%

0.00% Pre

Buying shares in the best businesses can build meaningful wealth for you and your family. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held Synopsys, Inc. (NASDAQ:SNPS) shares for the last five years, while they gained 347%. This just goes to show the value creation that some businesses can achieve. Better yet, the share price has risen 5.5% in the last week.

Since the stock has added US$4.3b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

Check out our latest analysis for Synopsys

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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).

Over half a decade, Synopsys managed to grow its earnings per share at 18% a year. This EPS growth is lower than the 35% 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. That's not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 58.92.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

earnings-per-share-growth
NasdaqGS:SNPS Earnings Per Share Growth April 29th 2024

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. It might be well worthwhile taking a look at our free report on Synopsys' earnings, revenue and cash flow.

A Different Perspective

It's good to see that Synopsys has rewarded shareholders with a total shareholder return of 46% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 35% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. For instance, we've identified 1 warning sign for Synopsys that you should be aware of.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

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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