It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But if you buy shares in a really great company, you can more than double your money. To wit, the Donnelley Financial Solutions, Inc. (NYSE:DFIN) share price has flown 284% in the last three years. Most would be happy with that. Also pleasing for shareholders was the 13% gain in the last three months.
Although Donnelley Financial Solutions has shed US$67m from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.
Check out our latest analysis for Donnelley Financial Solutions
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. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Donnelley Financial Solutions was able to grow its EPS at 58% per year over three years, sending the share price higher. This EPS growth is remarkably close to the 57% average annual increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. Quite to the contrary, the share price has arguably reflected the EPS growth.
The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).
It is of course excellent to see how Donnelley Financial Solutions has grown profits over the years, but the future is more important for shareholders. This free interactive report on Donnelley Financial Solutions' balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
It's good to see that Donnelley Financial Solutions has rewarded shareholders with a total shareholder return of 40% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 28% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Donnelley Financial Solutions better, we need to consider many other factors. For instance, we've identified 1 warning sign for Donnelley Financial Solutions that 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 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.