Eicher Motors (NSE:EICHERMOT) sheds 3.2% this week, as yearly returns fall more in line with earnings growth

When you buy a stock there is always a possibility that it could drop 100%. But on a lighter note, a good company can see its share price rise well over 100%. For instance, the price of Eicher Motors Limited (NSE:EICHERMOT) stock is up an impressive 158% over the last five years. Unfortunately, though, the stock has dropped 3.2% over a week. But this could be related to the soft market, with stocks selling off around 0.7% in the last week.

In light of the stock dropping 3.2% in the past week, we want to investigate the longer term story, and see if fundamentals have been the driver of the company's positive five-year return.

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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. 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, Eicher Motors achieved compound earnings per share (EPS) growth of 21% per year. That makes the EPS growth particularly close to the yearly share price growth of 21%. This indicates that investor sentiment towards the company has not changed a great deal. Rather, the share price has approximately tracked EPS growth.

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

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

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Eicher Motors' TSR for the last 5 years was 167%, 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 nice to see that Eicher Motors shareholders have received a total shareholder return of 13% over the last year. That's including the dividend. However, that falls short of the 22% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. Before deciding if you like the current share price, check how Eicher Motors scores on these 3 valuation metrics.

Of course Eicher Motors may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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