Despite the downward trend in earnings at Ujjivan Small Finance Bank (NSE:UJJIVANSFB) the stock lifts 6.1%, bringing three-year gains to 104%

By buying an index fund, investors can approximate the average market return. But if you choose individual stocks with prowess, you can make superior returns. Just take a look at Ujjivan Small Finance Bank Limited (NSE:UJJIVANSFB), which is up 90%, over three years, soundly beating the market return of 54% (not including dividends). On the other hand, the returns haven't been quite so good recently, with shareholders up just 61%.

After a strong gain in the past week, it's worth seeing if longer term returns have been driven by improving fundamentals.

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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. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the three years of share price growth, Ujjivan Small Finance Bank actually saw its earnings per share (EPS) drop 13% per year.

This means it's unlikely the market is judging the company based on earnings growth. Therefore, we think it's worth considering other metrics as well.

It may well be that Ujjivan Small Finance Bank revenue growth rate of 8.4% over three years has convinced shareholders to believe in a brighter future. If the company is being managed for the long term good, today's shareholders might be right to hold on.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

It's probably worth noting that the CEO is paid less than the median at similar sized companies. It's always worth keeping an eye on CEO pay, but a more important question is whether the company will grow earnings throughout the years. So it makes a lot of sense to check out what analysts think Ujjivan Small Finance Bank will earn in the future (free profit forecasts).

What About The Total Shareholder Return (TSR)?

We've already covered Ujjivan Small Finance Bank's share price action, but we should also mention its total shareholder return (TSR). 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. Dividends have been really beneficial for Ujjivan Small Finance Bank shareholders, and that cash payout contributed to why its TSR of 104%, over the last 3 years, is better than the share price return.

A Different Perspective

We're pleased to report that Ujjivan Small Finance Bank shareholders have received a total shareholder return of 61% over one year. That gain is better than the annual TSR over five years, which is 9%. Therefore it seems like sentiment around the company has been positive lately. 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. Case in point: We've spotted 1 warning sign for Ujjivan Small Finance Bank you should be aware of.

We will like Ujjivan Small Finance Bank 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.