Cummins India's (NSE:CUMMINSIND) earnings growth rate lags the 47% CAGR delivered to shareholders

For many, the main point of investing in the stock market is to achieve spectacular returns. And we've seen some truly amazing gains over the years. For example, the Cummins India Limited (NSE:CUMMINSIND) share price is up a whopping 527% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. In the last week shares have slid back 5.7%. We love happy stories like this one. The company should be really proud of that performance!

Since the long term performance has been good but there's been a recent pullback of 5.7%, let's check if the fundamentals match the share price.

Check out our latest analysis for Cummins India

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. 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 five years of share price growth, Cummins India achieved compound earnings per share (EPS) growth of 21% per year. This EPS growth is lower than the 44% 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. And that's hardly shocking given the track record of growth. This favorable sentiment is reflected in its (fairly optimistic) P/E ratio of 54.40.

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

It is of course excellent to see how Cummins India has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

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 incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Cummins India's TSR for the last 5 years was 585%, 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 Cummins India has rewarded shareholders with a total shareholder return of 114% in the last twelve months. Of course, that includes the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 47% 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. It's always interesting to track share price performance over the longer term. But to understand Cummins India better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with Cummins India .

But note: Cummins India 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.