Investors in Constellation Software (TSE:CSU) have made a massive 304% return over the past five years

When you buy a stock, there is always a possibility that it will drop by 100%. But if you choose a company that is really flourishing, you can to make more than 100%. The price of, for example Constellation Software Inc. (TSE:CSU) Shares are up a whopping 264% in the past five years.

So let’s examine whether the company’s longer-term performance is in line with the underlying company’s progress.

Check out our latest analysis for Constellation Software

Although the efficient markets hypothesis is still taught by some, it has been proven that markets are over-reactive dynamic systems and that investors are not always rational. One imperfect but simple way to consider how the market perception of a company has changed is to compare the change in the earnings per share (EPS) with the share price movement.

In half a decade, Constellation Software managed to grow earnings per share at 6.9% per year. This earnings per share growth is slower than the share price growth of 29% per year over the same period. So it’s fair to assume that the market has a higher opinion of the company than it did five years ago. That’s not necessarily surprising, given its five-year track record of earnings growth. This optimism is visible in the fairly high price-earnings ratio of 119.33.

In the image below you can see how EPS has changed over time (click on the chart to see the exact values).

Before buying or selling a stock, we always recommend closely examining historical growth trends, available here.

It’s important to consider the total shareholder return and share price return for any stock. The TSR is a return calculation that takes into account the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It’s fair to say that the TSR gives a more complete picture for dividend-paying stocks. In the case of Constellation Software, it has a TSR of 304% over the last 5 years. That exceeds the share price return we mentioned earlier. This is largely a result of the dividend payments!

It’s nice to see that Constellation Software shareholders have received a total shareholder return of 42% over the last year. And that includes the dividend. That’s better than the annualized return of 32% over half a decade, implying the company is doing better lately. With share price momentum remaining strong, it may be worth taking a closer look at the stock so you don’t miss any opportunities. 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. To this end, you must be aware of the 2 warning signs we’ve seen it with Constellation Software.

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