Hindustan Composites' (NSE:HINDCOMPOS) five-year total shareholder returns outpace the underlying earnings growth

Hindustan Composites Limited (NSE:HINDCOMPOS) shareholders might be concerned after seeing the share price drop 18% in the last quarter. But that doesn't change the fact that the returns over the last five years have been very strong. It's fair to say most would be happy with 165% the gain in that time. Generally speaking the long term returns will give you a better idea of business quality than short periods can. Ultimately business performance will determine whether the stock price continues the positive long term trend.

Since the long term performance has been good but there's been a recent pullback of 11%, let's check if the fundamentals match the share price.

See our latest analysis for Hindustan Composites

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. 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, Hindustan Composites managed to grow its earnings per share at 15% a year. This EPS growth is lower than the 22% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth.

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

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

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Hindustan Composites' TSR for the last 5 years was 174%, 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

Hindustan Composites shareholders gained a total return of 15% during the year. But that was short of the market average. If we look back over five years, the returns are even better, coming in at 22% per year for five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. 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. Even so, be aware that Hindustan Composites is showing 1 warning sign in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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.