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Long term investing can be life changing when you buy and hold the truly great businesses. While the best companies are hard to find, but they can generate massive returns over long periods. For example, the International Petroleum Corporation (TSE:IPCO) share price is up a whopping 853% in the last half decade, a handsome return for long term holders. This just goes to show the value creation that some businesses can achieve. On top of that, the share price is up 22% in about a quarter. Anyone who held for that rewarding ride would probably be keen to talk about it.
So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.
View our latest analysis for International Petroleum
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.
During five years of share price growth, International Petroleum achieved compound earnings per share (EPS) growth of 6.7% per year. This EPS growth is slower than the share price growth of 57% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..
A Different Perspective
It's good to see that International Petroleum has rewarded shareholders with a total shareholder return of 29% in the last twelve months. However, the TSR over five years, coming in at 57% per year, is even more impressive. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 2 warning signs for International Petroleum (1 makes us a bit uncomfortable) that you should be aware of.