For many, the main point of investing in the stock market is to achieve spectacular returns. And highest quality companies can see their share prices grow by huge amounts. Just think about the savvy investors who held Casella Waste Systems, Inc. (NASDAQ:CWST) shares for the last five years, while they gained 673%. 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 25% in about a quarter. We love happy stories like this one. The company should be really proud of that performance!
Since the stock has added US$238m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.
See our latest analysis for Casella Waste Systems
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 way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the five years of share price growth, Casella Waste Systems moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the Casella Waste Systems share price has gained 156% in three years. Meanwhile, EPS is up 37% per year. This EPS growth is remarkably close to the 37% average annual increase in the share price (over three years, again). So you could reasonably conclude that investor sentiment towards the stock has remained pretty steady, over time. There's a strong correlation between the share price and EPS.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
It is of course excellent to see how Casella Waste Systems has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
We're pleased to report that Casella Waste Systems shareholders have received a total shareholder return of 44% over one year. However, that falls short of the 51% TSR per annum it has made for shareholders, each year, over five years. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Case in point: We've spotted 4 warning signs for Casella Waste Systems you should be aware of, and 1 of them is significant.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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