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Horizon Therapeutics (NASDAQ:HZNP) delivers shareholders massive 48% CAGR over 5 years, surging 3.2% in the last week alone

It hasn't been the best quarter for Horizon Therapeutics Public Limited Company (NASDAQ:HZNP) shareholders, since the share price has fallen 22% in that time. But that doesn't undermine the fantastic longer term performance (measured over five years). In fact, during that period, the share price climbed 617%. Impressive! Arguably, the recent fall is to be expected after such a strong rise. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price. Anyone who held for that rewarding ride would probably be keen to talk about it.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

Check out our latest analysis for Horizon Therapeutics

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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.

During the last half decade, Horizon Therapeutics became profitable. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the Horizon Therapeutics share price has gained 254% in three years. Meanwhile, EPS is up 101% per year. This EPS growth is higher than the 52% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
earnings-per-share-growth

It is of course excellent to see how Horizon Therapeutics has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

While it's certainly disappointing to see that Horizon Therapeutics shares lost 11% throughout the year, that wasn't as bad as the market loss of 17%. Longer term investors wouldn't be so upset, since they would have made 48%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. 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. Consider for instance, the ever-present spectre of investment risk. We've identified 2 warning signs with Horizon Therapeutics , and understanding them should be part of your investment process.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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