While shareholders of Broadcom (NASDAQ:AVGO) are in the black over 5 years, those who bought a week ago aren't so fortunate
It might be of some concern to shareholders to see the Broadcom Inc. (NASDAQ:AVGO) share price down 20% in the last month. But in stark contrast, the returns over the last half decade have impressed. It's fair to say most would be happy with 168% the gain in that time. To some, the recent pullback wouldn't be surprising after such a fast rise. Only time will tell if there is still too much optimism currently reflected in the share price.
Since the long term performance has been good but there's been a recent pullback of 7.6%, let's check if the fundamentals match the share price.
View our latest analysis for Broadcom
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, Broadcom 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.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Broadcom, it has a TSR of 215% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.
A Different Perspective
It's good to see that Broadcom has rewarded shareholders with a total shareholder return of 19% in the last twelve months. That's including the dividend. Having said that, the five-year TSR of 26% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand Broadcom better, we need to consider many other factors. Case in point: We've spotted 4 warning signs for Broadcom you should be aware of.
Broadcom is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US 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.