Broadcom (NASDAQ:AVGO) jumps 3.2% this week, though earnings growth is still tracking behind five-year shareholder returns
We think all investors should try to buy and hold high quality multi-year winners. And we've seen some truly amazing gains over the years. For example, the Broadcom Inc. (NASDAQ:AVGO) share price is up a whopping 704% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. On top of that, the share price is up 34% in about a quarter. This could be related to the recent financial results, released recently - you can catch up on the most recent data by reading our company report. Anyone who held for that rewarding ride would probably be keen to talk about it.
Since the stock has added US$37b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.
Over half a decade, Broadcom managed to grow its earnings per share at 37% a year. This EPS growth is lower than the 52% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 89.55.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Broadcom's earnings, revenue and cash flow.
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Broadcom the TSR over the last 5 years was 804%, 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!
We're pleased to report that Broadcom shareholders have received a total shareholder return of 40% over one year. And that does include the dividend. However, the TSR over five years, coming in at 55% per year, is even more impressive. It's always interesting to track share price performance over the longer term. But to understand Broadcom better, we need to consider many other factors. For example, we've discovered 2 warning signs for Broadcom that you should be aware of before investing here.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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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