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Does NetApp's (NASDAQ:NTAP) Share Price Gain of 38% Match Its Business Performance?

Simply Wall St

It hasn't been the best quarter for NetApp, Inc. (NASDAQ:NTAP) shareholders, since the share price has fallen 13% in that time. On the bright side the share price is up over the last half decade. In that time, it is up 38%, which isn't bad, but is below the market return of 73%. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 19% decline over the last twelve months.

View our latest analysis for NetApp

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 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, NetApp managed to grow its earnings per share at 17% a year. This EPS growth is higher than the 6.6% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

NasdaqGS:NTAP Past and Future Earnings, February 20th 2020

We know that NetApp has improved its bottom line over the last three years, but what does the future have in store? If you are thinking of buying or selling NetApp stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, NetApp's TSR for the last 5 years was 55%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

NetApp shareholders are down 16% for the year (even including dividends) , but the market itself is up 23%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 9.1%, each year, over five years. 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. For example, we've discovered 2 warning signs for NetApp that you should be aware of before investing here.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.