Mahindra & Mahindra's (NSE:M&M) five-year earnings growth trails the massive shareholder returns

For many, the main point of investing in the stock market is to achieve spectacular returns. And highest quality companies can see their share prices grow by huge amounts. To wit, the Mahindra & Mahindra Limited (NSE:M&M) share price has soared 484% over five years. This just goes to show the value creation that some businesses can achieve. We note the stock price is up 4.6% in the last seven days.

Since the stock has added ₹157b to its market cap in the past week alone, let's see if underlying performance has been driving long-term returns.

View our latest analysis for Mahindra & Mahindra

To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During five years of share price growth, Mahindra & Mahindra achieved compound earnings per share (EPS) growth of 29% per year. This EPS growth is lower than the 42% average annual increase in the share price. So it's fair to assume the market has a higher opinion of the business than it did five years ago. 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).

This free interactive report on Mahindra & Mahindra's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. 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. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Mahindra & Mahindra's TSR for the last 5 years was 510%, 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 Mahindra & Mahindra has rewarded shareholders with a total shareholder return of 96% in the last twelve months. That's including the dividend. That's better than the annualised return of 44% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Mahindra & Mahindra better, we need to consider many other factors. For instance, we've identified 3 warning signs for Mahindra & Mahindra (1 is a bit unpleasant) that you should be aware of.

We will like Mahindra & Mahindra better if we see some big insider buys. While we wait, check out this free list of undervalued stocks (mostly small caps) with considerable, recent, insider buying.

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.