When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. Unfortunately for shareholders, while the ScanSource, Inc. (NASDAQ:SCSC) share price is up 65% in the last five years, that's less than the market return. The last year has been disappointing, with the stock price down 20% in that time.
Since it's been a strong week for ScanSource shareholders, let's have a look at trend of the longer term fundamentals.
We've discovered 1 warning sign about ScanSource. 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. 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, ScanSource managed to grow its earnings per share at 4.7% a year. This EPS growth is slower than the share price growth of 11% 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.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
Dive deeper into ScanSource's key metrics by checking this interactive graph of ScanSource's earnings, revenue and cash flow.
A Different Perspective
While the broader market gained around 8.7% in the last year, ScanSource shareholders lost 20%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 11%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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. Even so, be aware that ScanSource is showing 1 warning sign in our investment analysis , you should know about...
Of course ScanSource may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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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.