Karur Vysya Bank's (NSE:KARURVYSYA) three-year total shareholder returns outpace the underlying earnings growth

Generally speaking, investors are inspired to be stock pickers by the potential to find the big winners. Mistakes are inevitable, but a single top stock pick can cover any losses, and so much more. For example, the The Karur Vysya Bank Limited (NSE:KARURVYSYA) share price is up a whopping 300% in the last three years, a handsome return for long term holders. But it's down 8.8% in the last week. But this could be related to the soft market, with stocks selling off around 5.4% in the last week.

In light of the stock dropping 8.8% 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 three-year return.

View our latest analysis for Karur Vysya Bank

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.

During three years of share price growth, Karur Vysya Bank achieved compound earnings per share growth of 63% per year. We note that the 59% yearly (average) share price gain isn't too far from the EPS growth rate. Coincidence? Probably not. This observation indicates that the market's attitude to the business hasn't changed all that much. Quite to the contrary, the share price has arguably reflected the 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 Karur Vysya Bank has grown profits over the years, but the future is more important for shareholders. This free interactive report on Karur Vysya Bank's balance sheet strength 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. 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. As it happens, Karur Vysya Bank's TSR for the last 3 years was 325%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

It's nice to see that Karur Vysya Bank shareholders have received a total shareholder return of 35% over the last year. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 32% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 2 warning signs we've spotted with Karur Vysya Bank .

If you are like me, then you will not want to miss this free list of undervalued small caps that insiders are 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.