Bharat Electronics' (NSE:BEL) three-year total shareholder returns outpace the underlying earnings growth

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But if you buy shares in a really great company, you can more than double your money. To wit, the Bharat Electronics Limited (NSE:BEL) share price has flown 112% in the last three years. That sort of return is as solid as granite. It's also good to see the share price up 14% over the last quarter. But this move may well have been assisted by the reasonably buoyant market (up 7.0% in 90 days).

While this past week has detracted from the company's three-year return, let's look at the recent trends of the underlying business and see if the gains have been in alignment.

Check out our latest analysis for Bharat Electronics

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 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 three years of share price growth, Bharat Electronics achieved compound earnings per share growth of 6.8% per year. This EPS growth is lower than the 28% 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 three years ago. It is quite common to see investors become enamoured with a business, after a few years of solid progress.

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

It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. Before buying or selling a stock, we always recommend a close examination of historic growth trends, available here..

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Bharat Electronics' TSR for the last 3 years was 132%, 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 Bharat Electronics has rewarded shareholders with a total shareholder return of 97% in the last twelve months. Of course, that includes the dividend. That's better than the annualised return of 13% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. 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. For instance, we've identified 1 warning sign for Bharat Electronics that you should be aware of.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.

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.

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