FormFactor, Inc. (NASDAQ:FORM) shareholders might be concerned after seeing the share price drop 22% in the last quarter. But that scarcely detracts from the really solid long term returns generated by the company over five years. It's fair to say most would be happy with 122% the gain in that time. So while it's never fun to see a share price fall, it's important to look at a longer time horizon. Of course, that doesn't necessarily mean it's cheap now.
After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.
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, FormFactor moved from a loss to profitability. That kind of transition can be an inflection point that justifies a strong share price gain, just as we have seen here.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
We know that FormFactor has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.
A Different Perspective
FormFactor provided a TSR of 33% over the year. That's fairly close to the broader market return. That gain looks pretty satisfying, and it is even better than the five-year TSR of 17% per year. Even if the share price growth slows down from here, there's a good chance that this is business worth watching in the long term. It's always interesting to track share price performance over the longer term. But to understand FormFactor better, we need to consider many other factors. Take risks, for example - FormFactor has 2 warning signs we think you should be aware of.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American 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.
