Does BEML’s (NSE:BEML) Share Price Gain of 24% Match Its Business Performance?

When you buy and hold a stock for the long term, you definitely want it to provide a positive return. But more than that, you probably want to see it rise more than the market average. But BEML Limited (NSE:BEML) has fallen short of that second goal, with a share price rise of 24% over five years, which is below the market return. Zooming in, the stock is up a respectable 12% in the last year.

See our latest analysis for BEML

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 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, BEML managed to grow its earnings per share at 70% a year. This EPS growth is higher than the 4.5% average annual increase in the share price. So it seems the market isn’t so enthusiastic about the stock these days.

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

NSEI:BEML Past and Future Earnings, January 4th 2020
NSEI:BEML Past and Future Earnings, January 4th 2020

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, BEML’s TSR for the last 5 years was 28%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It’s good to see that BEML has rewarded shareholders with a total shareholder return of 13% in the last twelve months. And that does include the dividend. That’s better than the annualised return of 5.1% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Is BEML cheap compared to other companies? These 3 valuation measures might help you decide.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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