The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. One great example is InterDigital, Inc. (NASDAQ:IDCC) which saw its share price drive 263% higher over five years. On top of that, the share price is up 10% in about a quarter. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.
The past week has proven to be lucrative for InterDigital investors, so let’s see if fundamentals drove the company’s five-year performance.
We’ve discovered 1 warning sign about InterDigital. View them for free.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.
During five years of share price growth, InterDigital achieved compound earnings per share (EPS) growth of 79% per year. The EPS growth is more impressive than the yearly share price gain of 29% over the same period. So it seems the market isn’t so enthusiastic about the stock these days.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We know that InterDigital has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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 InterDigital, it has a TSR of 300% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
It’s nice to see that InterDigital shareholders have received a total shareholder return of 99% over the last year. That’s including the dividend. That gain is better than the annual TSR over five years, which is 32%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. Take risks, for example – InterDigital has 1 warning sign we think you should be aware of.