Yahoo Finance LGI Homes' (NASDAQ:LGIH) 7.6% CAGR outpaced the company's earnings growth over the same five-year period
It hasn't been the best quarter for LGI Homes, Inc. (NASDAQ:LGIH) shareholders, since the share price has fallen 21% in that time. But at least the stock is up over the last five years. Unfortunately its return of 44% is below the market return of 59%. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 39% drop, in the last year.
On the back of a solid 7-day performance, let's check what role the company's fundamentals have played in driving long term shareholder returns.
See our latest analysis for LGI Homes
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. 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, LGI Homes managed to grow its earnings per share at 34% a year. This EPS growth is higher than the 8% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. This cautious sentiment is reflected in its (fairly low) P/E ratio of 4.98.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We like that insiders have been buying shares in the last twelve months. Even so, future earnings will be far more important to whether current shareholders make money. Dive deeper into the earnings by checking this interactive graph of LGI Homes' earnings, revenue and cash flow.
A Different Perspective
We regret to report that LGI Homes shareholders are down 39% for the year. Unfortunately, that's worse than the broader market decline of 21%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 8% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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. Take risks, for example - LGI Homes has 3 warning signs we think 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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