Vedanta Limited (NSE:VEDL) shareholders should be happy to see the share price up 29% in the last month. But over the last three years we’ve seen a quite serious decline. Regrettably, the share price slid 67% in that period. So it is really good to see an improvement. Perhaps the company has turned over a new leaf.
View our latest analysis for Vedanta
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Vedanta moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. So it’s worth looking at other metrics to try to understand the share price move.
We note that the dividend seems healthy enough, so that probably doesn’t explain the share price drop. We like that Vedanta has actually grown its revenue over the last three years. But it’s not clear to us why the share price is down. It might be worth diving deeper into the fundamentals, lest an opportunity goes begging.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
Vedanta is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. Given we have quite a good number of analyst forecasts, it might be well worth checking out this free chart depicting consensus estimates.
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. We note that for Vedanta the TSR over the last 3 years was -60%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that Vedanta shareholders are down 51% for the year (even including dividends) . Unfortunately, that’s worse than the broader market decline of 19%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 13% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. Take risks, for example – Vedanta has 3 warning signs (and 1 which shouldn’t be ignored) we think you should know about.
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 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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