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, if you buy shares in a high quality company at the right price, you can gain well over 100%. For example, the Constellation Software Inc. (TSE:CSU) share price has soared 159% in the last half decade. Most would be very happy with that. Also pleasing for shareholders was the 14% gain in the last three months.
Let’s take a look at the underlying fundamentals over the longer term, and see if they’ve been consistent with shareholder returns.
Check out our latest analysis for Constellation Software
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it’s a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have changed over time.
Over half a decade, Constellation Software managed to grow its earnings per share at 14% a year. This EPS growth is slower than the share price growth of 21% per year, over the same period. 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 favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 85.96.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Constellation Software’s earnings, revenue and cash flow.
What About Dividends?
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. In the case of Constellation Software, it has a TSR of 196% for the last 5 years. That exceeds its share price return that we previously mentioned. And there’s no prize for guessing that the dividend payments in part explain the divergence!
A Different Perspective
We’re pleased to report that Constellation Software shareholders have received a total shareholder return of 52% over one year. That’s including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 24% per year), it would seem that the stock’s performance has improved in recent times. Someone with an optimistic perspective could see the recent improvement in TSR as indicating that the business itself is getting better with time. It’s always interesting to track price share performance over the longer term. But to understand Constellation Software better, we need to consider many other factors. Even so, be aware that Constellation Software is showing 2 warning signs in our investment analysis you should know about…
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 are currently trading on Canadian exchanges.
Have feedback on this article? Concerned about the content? get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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