Blue Star (NSE:BLUESTARCO) stock performs better than its underlying earnings growth over last five years

We think all investors should try to buy and hold high quality multi-year winners. And we've seen some truly amazing gains over the years. To wit, the Blue Star Limited (NSE:BLUESTARCO) share price has soared 761% over five years. If that doesn't get you thinking about long term investing, we don't know what will. It's also up 9.8% in about a month. It really delights us to see such great share price performance for investors.

Since the stock has added ₹28b 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 Blue Star

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 five years of share price growth, Blue Star achieved compound earnings per share (EPS) growth of 20% per year. This EPS growth is slower than the share price growth of 54% per year, over the same period. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 79.49.

The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).

It is of course excellent to see how Blue Star has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Blue Star's financial health with this free report on its balance sheet.

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. In the case of Blue Star, it has a TSR of 784% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's nice to see that Blue Star shareholders have received a total shareholder return of 70% over the last year. That's including the dividend. That gain is better than the annual TSR over five years, which is 55%. Therefore it seems like sentiment around the company has been positive lately. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. 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. Take risks, for example - Blue Star has 1 warning sign we think you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

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.