We think all investors should try to buy and hold high quality multi-year winners. While the best companies are hard to find, but they can generate massive returns over long periods. Don't believe it? Then look at the e.l.f. Beauty, Inc. (NYSE:ELF) share price. It's 699% higher than it was five years ago. This just goes to show the value creation that some businesses can achieve. Better yet, the share price has risen 29% in the last week. This could be related to the recent financial results, released less than a week ago -- you can catch up on the most recent data by reading our company report. We love happy stories like this one. The company should be really proud of that performance!

Since the stock has added US$1.7b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

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.

Over half a decade, e.l.f. Beauty managed to grow its earnings per share at 116% a year. This EPS growth is higher than the 52% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company. Of course, with a P/E ratio of 69.98, the market remains optimistic.

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

It is of course excellent to see how e.l.f. Beauty has grown profits over the years, but the future is more important for shareholders. This free interactive report on e.l.f. Beauty's balance sheet strength is a great place to start, if you want to investigate the stock further.

A Different Perspective

e.l.f. Beauty's TSR for the year was broadly in line with the market average, at 38%. It has to be noted that the recent return falls short of the 52% shareholders have gained each year, over half a decade. More recently, the share price growth has slowed. But it has to be said the overall picture is one of good long term and short term performance. Arguably that makes e.l.f. Beauty a stock worth watching. 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 example, we've discovered 2 warning signs for e.l.f. Beauty that you should be aware of before investing here.

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 American 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.