Hindustan Composites' (NSE:HINDCOMPOS) 27% CAGR outpaced the company's earnings growth over the same three-year period

It might seem bad, but the worst that can happen when you buy a stock (without leverage) is that its share price goes to zero. But when you pick a company that is really flourishing, you can make more than 100%. To wit, the Hindustan Composites Limited (NSE:HINDCOMPOS) share price has flown 101% in the last three years. That sort of return is as solid as granite. Better yet, the share price has risen 11% in the last week. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report.

Since the stock has added ₹685m to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

See our latest analysis for Hindustan Composites

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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.

Hindustan Composites was able to grow its EPS at 33% per year over three years, sending the share price higher. The average annual share price increase of 26% is actually lower than the EPS growth. Therefore, it seems the market has moderated its expectations for growth, somewhat.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It might be well worthwhile taking a look at our free report on Hindustan Composites' earnings, revenue and cash flow.

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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. We note that for Hindustan Composites the TSR over the last 3 years was 105%, which is better than the share price return mentioned above. And there's no prize for guessing that the dividend payments largely explain the divergence!

A Different Perspective

It's nice to see that Hindustan Composites shareholders have received a total shareholder return of 44% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 7%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. It's always interesting to track share price performance over the longer term. But to understand Hindustan Composites better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Hindustan Composites .

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.