Alphabet Inc. (NASDAQ: GOOG.L) shareholders may be worried after seeing the stock price drop 16% in the last quarter. But in contrast, the returns of the latter half of the decade have impressed. In fact, the stock price is now 126% higher. So while it’s never fun to see a stock price go down, it’s important to look longer term. Only time will tell if there is still too much optimism in the share price.
Check out our latest analysis for Alphabet
Although markets are a powerful pricing mechanism, stock prices reflect investor sentiment, not just the underlying performance of companies. An imperfect but simple way of looking at the evolution of a company’s perception of the market is to compare the change in earnings per share (EPS) with the movement in the share price.
Over half a decade, Alphabet has managed to increase its earnings per share by 20% per year. This EPS growth is reasonably close to the average annual increase of 18% in the share price. This indicates that investor sentiment towards society has not changed much. Indeed, it would seem that the share price reacts to EPS.
You can see how the EPS has changed over time in the image below (click on the graph to see the exact values).
We are pleased to report that the CEO is paid more modestly than most CEOs in similar capital companies. But while CEO compensation is still worth checking, the really important question is whether the company can increase its profits in the future. Before buying or selling a security, we always recommend a careful review of historical growth trends, available here.
A different perspective
Although it is never pleasant to suffer a loss, Alphabet shareholders can be reassured that their year-over-year loss of 1.3% was not as bad as the market loss of around 4.8% . Of course, long-term returns are much more important and the good news is that over five years the stock has declined 18% for each year. At best, last year was just a temporary blow on the road to a better future. I find it very interesting to consider the long-term share price as an indirect indicator of corporate performance. But to really understand, we must also take into account other information. Example: we have spotted 1 warning sign for Alphabet you must be aware.
Of course Alphabet may not be the best stock to buy. You may want to see this free collection of growth stocks.
Please note that the stock returns quoted in this article reflect the stock market weighted average returns that are currently trading on US stock exchanges.
If you spot an error that merits correction, please contact the publisher at [email protected] This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell securities and does not take into account your objectives or your financial situation. Simply Wall St has no position in the stocks mentioned.
Our goal is to provide you with long-term targeted research analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive corporate announcements or qualitative material. Thanks for the reading.