security

Napco Security Technologies' (NASDAQ:NSSC) 44% CAGR outpaced the company's earnings growth over the same five-year period – Simply Wall St


For many, the main point of investing in the stock market is to achieve spectacular returns. And we’ve seen some truly amazing gains over the years. To wit, the Napco Security Technologies, Inc. (NASDAQ:NSSC) share price has soared 515% over five years. If that doesn’t get you thinking about long term investing, we don’t know what will. Also pleasing for shareholders was the 17% gain in the last three months. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report. Anyone who held for that rewarding ride would probably be keen to talk about it.

After a strong gain in the past week, it’s worth seeing if longer term returns have been driven by improving fundamentals.

View our latest analysis for Napco Security Technologies

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, Napco Security Technologies managed to grow its earnings per share at 22% a year. This EPS growth is lower than the 44% average annual increase in the share price. So it’s fair to assume the market has a higher opinion of the business than it did five years ago. That’s not necessarily surprising considering the five-year track record of earnings growth. This optimism is visible in its fairly high P/E ratio of 54.43.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
NasdaqGS:NSSC Earnings Per Share Growth September 27th 2021

It’s probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Dive deeper into the earnings by checking this interactive graph of Napco Security Technologies’ earnings, revenue and cash flow.

A Different Perspective

We’re pleased to report that Napco Security Technologies shareholders have received a total shareholder return of 95% over one year. That gain is better than the annual TSR over five years, which is 44%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Even so, be aware that Napco Security Technologies is showing 1 warning sign in our investment analysis , you should know about…

But note: Napco Security Technologies 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 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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