Seagate Technology Holdings (NASDAQ:STX) stock performs better than its underlying earnings growth over last three years

Seagate Technology Holdings plc (NASDAQ:STX) shareholders might be concerned after seeing the share price drop 16% in the last quarter. But that doesn't undermine the rather lovely longer-term return, if you measure over the last three years. The share price marched upwards over that time, and is now 111% higher than it was. After a run like that some may not be surprised to see prices moderate. Only time will tell if there is still too much optimism currently reflected in the share price.

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.

Check out our latest analysis for Seagate Technology Holdings

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 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.

Seagate Technology Holdings was able to grow its EPS at 18% per year over three years, sending the share price higher. This EPS growth is lower than the 28% average annual increase in the share price. This suggests that, as the business progressed over the last few years, it gained the confidence of market participants. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

You can see how EPS has changed over time in the image below (click on the chart to see the exact values).

We know that Seagate Technology Holdings has improved its bottom line lately, but is it going to grow revenue? Check if analysts think Seagate Technology Holdings will grow revenue in the future.

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 is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of Seagate Technology Holdings, it has a TSR of 140% for the last 3 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

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A Different Perspective

While it's certainly disappointing to see that Seagate Technology Holdings shares lost 5.8% throughout the year, that wasn't as bad as the market loss of 10%. Of course, the long term returns are far more important and the good news is that over five years, the stock has returned 21% for each year. It could be that the business is just facing some short term problems, but shareholders should keep a close eye on the fundamentals. It's always interesting to track share price performance over the longer term. But to understand Seagate Technology Holdings better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with Seagate Technology Holdings .

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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.

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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.

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