It's been a soft week for Broadcom Inc. (NASDAQ:AVGO) shares, which are down 10%. But that doesn't change the fact that the returns over the last half decade have been spectacular. To be precise, the stock price is 423% higher than it was five years ago, a wonderful performance by any measure. So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain.

While the stock has fallen 10% this week, it's worth focusing on the longer term and seeing if the stocks historical returns have been driven by the underlying fundamentals.

See our latest analysis for Broadcom

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. 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.

Over half a decade, Broadcom managed to grow its earnings per share at 9.5% a year. This EPS growth is slower than the share price growth of 39% per year, over the same period. So it's fair to assume the market has a higher opinion of the business than it did five years ago. That's not necessarily surprising considering the five-year track record of earnings growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 140.31.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

Dive deeper into Broadcom's key metrics by checking this interactive graph of Broadcom's earnings, revenue and cash flow.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). 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. As it happens, Broadcom's TSR for the last 5 years was 507%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

We're pleased to report that Broadcom shareholders have received a total shareholder return of 71% over one year. That's including the dividend. That gain is better than the annual TSR over five years, which is 43%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Consider risks, for instance. Every company has them, and we've spotted 4 warning signs for Broadcom you should know about.