TVS Motor's (NSE:TVSMOTOR) five-year earnings growth trails the enviable shareholder returns

Long term investing can be life changing when you buy and hold the truly great businesses. While the best companies are hard to find, but they can generate massive returns over long periods. Just think about the savvy investors who held TVS Motor Company Limited (NSE:TVSMOTOR) shares for the last five years, while they gained 684%. If that doesn't get you thinking about long term investing, we don't know what will. Also pleasing for shareholders was the 23% gain in the last three months. The company reported its financial results recently; you can catch up on the latest numbers by reading our company report. It really delights us to see such great share price performance for investors.

Since the stock has added ₹79b 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 TVS Motor

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.

Over half a decade, TVS Motor managed to grow its earnings per share at 20% a year. This EPS growth is lower than the 51% 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. That's not necessarily surprising considering the five-year track record of earnings growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 76.74.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

It is of course excellent to see how TVS Motor has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. As it happens, TVS Motor's TSR for the last 5 years was 707%, 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

It's nice to see that TVS Motor shareholders have received a total shareholder return of 107% over the last year. That's including the dividend. That's better than the annualised return of 52% over half a decade, implying that the company is doing better recently. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. 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. Case in point: We've spotted 2 warning signs for TVS Motor you should be aware of, and 1 of them is potentially serious.

But note: TVS Motor may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.