If You Had Bought Sopheon (LON:SPE) Shares Five Years Ago You'd Have Earned 704% Returns
We think all investors should try to buy and hold high quality multi-year winners. While not every stock performs well, when investors win, they can win big. To wit, the Sopheon plc (LON:SPE) share price has soared 704% over five years. This just goes to show the value creation that some businesses can achieve. The last week saw the share price soften some 2.2%.
It really delights us to see such great share price performance for investors.
View our latest analysis for Sopheon
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 morphed over time.
Sopheon's earnings per share are down 1.1% per year, despite strong share price performance over five years.
By glancing at these numbers, we'd posit that the decline in earnings per share is not representative of how the business has changed over the years. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.
We doubt the modest 0.4% dividend yield is attracting many buyers to the stock. On the other hand, Sopheon's revenue is growing nicely, at a compound rate of 7.4% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
This free interactive report on Sopheon's balance sheet strength is a great place to start, if you want to investigate the stock further.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Sopheon, it has a TSR of 716% 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 largely explain the divergence!
A Different Perspective
It's nice to see that Sopheon shareholders have received a total shareholder return of 27% over the last year. Of course, that includes the dividend. However, the TSR over five years, coming in at 52% per year, is even more impressive. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. 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 2 warning signs for Sopheon (1 is a bit concerning) that you should be aware of.
But note: Sopheon may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
This article by Simply Wall St is general in nature. 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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