It hasn't been the best quarter for Applied Materials, Inc. (NASDAQ:AMAT) shareholders, since the share price has fallen 24% in that time. But in stark contrast, the returns over the last half decade have impressed. We think most investors would be happy with the 243% return, over that period. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Of course, that doesn't necessarily mean it's cheap now.

While the stock has fallen 11% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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, Applied Materials achieved compound earnings per share (EPS) growth of 25% per year. So the EPS growth rate is rather close to the annualized share price gain of 28% per year. Therefore one could conclude that sentiment towards the shares hasn't morphed very much. Indeed, it would appear the share price is reacting to the EPS.

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

We know that Applied Materials has improved its bottom line lately, but is it going to grow revenue? You could check out this free report showing analyst revenue forecasts.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Applied Materials' TSR for the last 5 years was 260%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Applied Materials' TSR for the year was broadly in line with the market average, at 20%. It has to be noted that the recent return falls short of the 29% shareholders have gained each year, over half a decade. Although the share price growth has slowed, the longer term story points to a business well worth watching. 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 1 warning sign for Applied Materials that you should be aware of before investing here.

Of course Applied Materials may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.