Broadcom's (NASDAQ:AVGO) 53% CAGR Outpaced the Company's Earnings Growth Over the Same Five-year Period

We think all investors should try to buy and hold high quality multi-year winners. And we've seen some truly amazing gains over the years. For example, the Broadcom Inc. (NASDAQ:AVGO) share price is up a whopping 641% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. And in the last month, the share price has gained 14%. We love happy stories like this one. The company should be really proud of that performance!

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.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, Broadcom achieved compound earnings per share (EPS) growth of 28% per year. This EPS growth is lower than the 49% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 86.97.

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

We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. This free interactive report on Broadcom's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR is a return calculation that accounts for 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 stocks that pay a dividend. As it happens, Broadcom's TSR for the last 5 years was 741%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We're pleased to report that Broadcom shareholders have received a total shareholder return of 45% over one year. That's including the dividend. However, the TSR over five years, coming in at 53% per year, is even more impressive. 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. For example, we've discovered 3 warning signs for Broadcom that you should be aware of before investing here.

But note: Broadcom may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.