Technology One (ASX:TNE) stock outperforms underlying earnings growth over past five years
Limited One Technology (ASX:TNE) Shareholders may be worried after seeing the stock price drop 17% in the last quarter. But that doesn’t take away from the really strong long-term returns generated by the company over five years. In fact, the stock price is 107% higher today. For some, the recent decline would not be surprising after such a rapid rise. Ultimately, trade performance will determine whether the stock price continues its positive long-term trend.
Last week proved to be lucrative for Technology One investors, so let’s see if fundamentals drove the company’s five-year performance.
See our latest analysis for Technology One
In his test The Graham-and-Doddsville super-investors Warren Buffett has described how stock prices don’t always rationally reflect a company’s value. An imperfect but simple way to examine how a company’s market perception has changed is to compare the evolution of earnings per share (EPS) with the movement of the share price.
In five years of share price growth, Technology One has achieved compound earnings per share (EPS) growth of 11% per year. This EPS growth is slower than the share price growth of 16% per year, over the same period. It is therefore fair to assume that the market has a better opinion of the company than five years ago. And that’s hardly shocking given the track record of growth. This optimism is visible in its rather high P/E ratio of 47.12.
The graph below illustrates the evolution of EPS over time (reveal the exact values by clicking on the image).
We appreciate that insiders have been buying stocks over the past twelve months. Even so, future earnings will be far more important to whether current shareholders are making money. Dive deeper into earnings with this interactive chart of earnings, revenue, and cash flow from Technology One.
What about dividends?
In addition to measuring share price performance, investors should also consider total shareholder return (TSR). TSR is a calculation of return that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of all discounted capital raisings and spinoffs. So for companies that pay a generous dividend, the TSR is often much higher than the stock price return. It turns out that Technology One’s TSR for the last 5 years was 124%, which exceeds the share price return mentioned earlier. This is largely the result of its dividend payments!
A different perspective
It’s nice to see that Technology One shareholders have received a total shareholder return of 26% over the past year. This includes the dividend. That’s better than the 18% annualized return over half a decade, which implies the company has been doing better recently. At best, this may hint at genuine trading momentum, implying that now could be a great time to dig deeper. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. Even so, know that Technology One shows 2 warning signs in our investment analysis and 1 of them does not suit us too much…
Technology One isn’t the only stock insiders are buying. So take a look at this free list of growing companies with insider buying.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently trading on AU exchanges.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.