We think all investors should try to buy and hold high quality multi-year winners. While the best companies are hard to find, but they can generate massive returns over long periods. Just think about the savvy investors who held Take-Two Interactive Software, Inc. (NASDAQ:TTWO) shares for the last five years, while they gained 433%. This just goes to show the value creation that some businesses can achieve. On top of that, the share price is up 13% in about a quarter. But this could be related to the strong market, which is up 11% in the last three months.
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the last half decade, Take-Two Interactive Software became profitable. 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. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Take-Two Interactive Software share price has gained 62% in three years. Meanwhile, EPS is up 32% per year. This EPS growth is higher than the 17% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. It might be well worthwhile taking a look at our free report on Take-Two Interactive Software's earnings, revenue and cash flow.
A Different Perspective
We're pleased to report that Take-Two Interactive Software shareholders have received a total shareholder return of 40% over one year. Having said that, the five-year TSR of 40% a year, is even better. It's always interesting to track share price performance over the longer term. But to understand Take-Two Interactive Software better, we need to consider many other factors. For instance, we've identified 1 warning sign for Take-Two Interactive Software that you should be aware of.
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. 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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